Frankfurt - The Gulf state of Qatar is to become a key shareholder in the new car powerhouse to be forged by leading German auto makers Volkswagen AG and Porsche SE, the companies said Friday.

Qatar Prime Minister Sheikh Hamad bin Jassim bin Jaber Al Thani signed the agreement just 24 hours after VW sealed a deal with the iconic German sports carmaker Porsche to merge the two auto manufacturers.

Shares in Porsche SE surged by as much as 14 per cent Friday following its merger agreement with Volkswagen, which forms part of German-based VW's ambitions to topple Japan's Toyota as the world's No 1 carmaker.

However, VW stock was down at one point Friday by 7.3 per cent at 209.50 euros after Europe's biggest auto manufacturer agreed Thursday to pay 3.3 billion euros (4.7 billion dollars) by the end of 2009 to buy a 42-per-cent stake in Porsche's core sports car business.

This will help to pave the way towards a full merger between the two carmakers in 2011, which would create an auto giant with annual sales of about 6.4 million vehicles and based around ten of the world's top brands.

"It is clear that the group has the force to become No 1," said Volkswagen chief Martin Winterkorn who is to head up the new merged group, which is to be based in Wolfsburg VW's northern German hometown.

Speaking in Wolfsburg Friday, Winterkorn said the new group would be backed up by an unrivalled global presence, technological development and model platform.

Indeed, the merger plan will bring together premium brands such as Porsche, Bentley, Bugatti, Lamborghini and Audi as well more mass- market models such as Volkswagen and Skoda.

Under the merger agreement, VW employees are also to hold between 1 per cent and 5 per cent of the new car making giant, it was also announced Friday.

The Porshe and Piech families are to retain the biggest stakes in the new group, with the state-owned Qatar investment fund ranking third on the stockholders' list behind the German state government of Lower Saxony, where VW is headquartered.

As Friday trading came to a close, Porsche shares were trading up 11.3 per cent at 49.62 euros, while VW stock was down 5.3 per cent at 214.00 euros.

Announcing the deal Thursday, Volkswagen will issue new preferred shares sometime in the first half of 2010 to finance the acquisition of the stake in Porsche, which is manufacturer of the legendary 911 sports car.

The merger agreement represents something of a change in fortunes for Porsche, which has amassed about 10 billion euros in debt in attempting to build a majority stake in a Volkswagen as part of a failed bid to takeover VW. Both carmakers are currently controlled by the Porsche and Piech families.

But the global financial crisis and the sharp fall in car sales eventually forced Porsche to abandon the takeover plan and agree to integrating its car-making business with Volkswagen.

VW expects the merger with Porsche to boost earnings by about 700 million euros a year as a result of synergies totalling about 3 billion euros generated by the fusion deal.

"Porsche and VW are taking a big step towards the top of the world," said VW chief financial officer Dieter Poetsch Friday.

VW is also planning a 4-billion-euro capital increase as part of mounting its purchase of Porsche.(dpa)