European stocks traded higher on Wednesday, with investors trying to shake off renewed fears over the health of the Chinese economy and continued fallout from the Volkswagen emissions scandal. The pan-European STOXX 600 was trading up 0.6 percent, despite wobbling after the U.S. open. London's FTSE 100 outperformed other markets, trading 2.2 percent while the French CAC was 0.9 percent up. The German DAX was trading 1.2 percent higher, despite Deutsche Bank cutting its target levels for the index. VW scandal to hit German GDP? German carmaker Volkswagen continued to dominate market talk after shares tanked at the start of the week, following news that the carmaker had falsified emission tests, with VW saying 11 million cars could be affected. Shares in the carmaker bounced back on Wednesday, trading up as much as 8 percent as bargain hunters flocked to the stock. Chief executive Martin Winterkorn succumbed to increasing pressure on Wednesday, announcing his resignation near the end of Europe's trade. On the back of this news, shares in the automaker pared sharply, trading up 5 percent, down from highs seen earlier in the session. Michael Hewson, chief market analyst at CMC Markets, said that with one in six German jobs depending on the car industry in some way, the fallout from the VW scandal could hit the country's economic growth. "Of all the factors that we saw yesterday the one that is most likely to be a particular worry is the spill over effects this drama surrounding Volkswagen will have on the wider German economy in the weeks and months ahead at a time when their appears to be some evidence that growth may well be slowing in the euro area," Hewson said in a note on Wednesday. As a result of the crisis. VW stock Wednesday received a series of downgrades from the likes of Deutsche Bank and JPMorgan. "We now rate VW Neutral (OW) with a new December 2016 target price of €179 (from €253), as we lack clarity on the potential total cost of the recall and the risk of additional engine investigations," JPMorgan wrote in a note on Wednesday. At the same time, French investment bank Societe Generale downgraded the European automobile sector from "overweight" to "neutral" amid the emissions scandal, sending the STOXX 600 autos sector down 1 percent. "After Volkswagen admitted that 11 million vehicles around the world had been fitted with a device designed to cheat emissions tests, investors are likely to stay away from the automobile sector for a while (as they could be wondering which company might be next)," SocGen wrote in a note on Wednesday. France's Peugeot Citroen and Renault however, were both in negative territory. U.S. stocks opened higher Wednesday as investors eyed oil prices, a rally in Europe and weak manufacturing data in China, however major indexes dipped into the red after the open.

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