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* Pan-European index rises 2.8 pct, Italy outperforms
* Auto shares rise 2.5 pct at end of worst week in four years
* Volkswagen falls over 4 pct in rocky session
* Zodiac Aerospace slumps on possible contract loss
By Danilo Masoni
MILAN Sept 25 (Reuters) - European shares ended higher on Friday after testing 2015 lows in the previous session, as concern over the global economy eased and a sell-off of car stocks began to slow.
Yet Volkswagen, the carmaker at the centre of a scandal that wiped out more than 30 billion euros of the sector's market value, continued to suffer as details emerged about how Europe's largest car company rigged emissions tests.
The pan-European FTSEurofirst 300 index gained 2.78 percent at 1,374.5 points. The blue-chip Euro STOXX 50 index climbed 3.11 percent. The FTSEurofirst was still down almost 1.7 percent this week.
European shares have been hit this week by concern over the broader risks of the emissions rigging, but the mood turned after Janet Yellen said overnight the Federal Reserve was on track to lift rates this year and U.S. GDP growth was revised upwards.
Some investors said they were positive on the longer-term outlook for European shares given signs of economic improvement and stimulus measures from the European Central Bank.
"We are positioned for improvements in domestic consumption in Europe, particularly in countries such as Spain and Italy, which already show considerable signs of improvement, and also in France where valuations are low and there are early signs of a belated recognition of the need for reform," said Ali Miremadi, fund manager at Taube Hodson Stonex Partners.
Among European blue-chip indexes, Italy's FTSE MIB outperformed with a 3.68 percent gain. Credit Suisse said in a note the country remained its "key overweight" within Europe and recovery was coming through.
The auto sector rose 2.49 percent, but still closed its worst week in four years.
Volkswagen fell 4.32 percent after Germany's transport minister said the company rigged emission tests on about 2.8 million diesel vehicles, pointing to cheating on a bigger scale than previously thought.
The decline came before the appointment of Matthias Mueller, head of Volkswagen's Porsche sports car brand, as CEO in a effort to tackle a crisis that has already led Volkswagen to set aside 6.5 billion euros.
Rival carmaker BMW rose 4.24 percent. The German car magazine Auto Bild clarified an earlier report to say it had no evidence the company manipulated emissions tests. Daimler rose 3.53 percent after denying allegations by a lobby group it had rigged emissions data for its vehicles.
Zodiac Aerospace slid 6.79 percent. The French aerospace supplier confirmed it faced court action and the possible loss of some business from American Airlines over delays in aircraft seat production.
Personal and household goods stocks ended up 3.69 percent to be the top sectoral gainer on Friday. Adidas was among the leaders after its U.S. rival Nike reported results that were better than expected.
Banks, which some investors view as well positioned to benefit from an economic recovery in Europe given their scope to cut costs, were among the top gainer.
Today's European research round-up (Additional reporting by Sudip Kar-Gupta in London)