UPDATE 3-Panic to close VW shorts as Porsche move surprises

(Adds new analyst, updates with closing price)

By Christiaan Hetzner

FRANKFURT, Oct 27 (Reuters) - Volkswagen's (VOWG.DE) share price tripled on Monday as short sellers piled into the stock to sew up their speculative positions on news Porsche had bought up nearly all VW's remaining free float.

The stampede pushed the value of VW's voting stock alone at one point to a record 188 billion euros ($233.9 billion), surpassing Toyota's (7203.T) market cap of $113 billion.

Porsche (PSHG_p.DE) said on Sunday it held stock and options equivalent to 74 percent of Europe's biggest carmaker and aimed to push through a domination agreement next year that would give it management control and capture VW's mighty cash flows.

This will almost certainly meet objections from VW's home state of Lower Saxony, which controls just over 20 percent. [ID:nLQ46943]. In return for losing their dividend, minority investors would get an annual cash payout set by Porsche.

Porsche controls 31.5 percent of VW stock via cash-settled options and its counterparties are likely holding shares as insurance against price spikes. This means investors who sold borrowed VW shares in hope of buying them back at lower prices are scrambling to find the few remaining shares on the market.

Sanford Bernstein analyst Max Warburton questioned Porsche's motives in announcing its holding, and suggested the company may have wanted to cash in one last big jackpot at the expense of unsuspecting investors.

"To have shorted the stock, hedge funds must have inadvertently borrowed stock from Porsche," he told clients, citing the less than 6 percent of the shares in free float.