Volkswagen froze talks over a merger that could bail out its majority owner Porsche SE
, leaving the luxury carmaker scrambling to reassure investors a deal to unite the two was still alive.

Porsche insisted the talks to create a sweeping automotive empire
were still on and that it faced no short-term financing issues, but the
standoff heightened market concern about how the firm would fund its 9
billion euro ($12.1 billion) debt pile -- sending its shares down more
than 9 percent at one stage.

A Porsche source confirmed a report it had asked German state bank KfW whether it could qualify for 1 billion euros in loans. Porsche said it had not applied for state aid.

nerves already stretched after VW called off merger talks set for
Monday, a source close to Volkswagen Chairman Ferdinand Piech told
Reuters that a meeting scheduled for Wednesday was also canceled.
Discussions could only resume if Porsche sheds more light on its
finances, the source said.

The news focused attention on the
potential financial risk posed by Porsche's complex web of derivative
contracts, which have undermined its attempts to forge closer ties with
conservatively funded VW.

We must get a clear idea of the true
state of affairs at Porsche. We need absolute transparency with regard
to the present situation, Volkswagen Chief Executive Martin Winterkorn
wrote in a letter to staff seen by Reuters.

At 9:54 a.m. EDT, Porsche shares were down 1.8 percent.