* Shares surge 3 pct after sell-off seen as overdone
* Wall Street to open sharply higher
* Dollar and yields jump as Yellen revives rate-hike talk
By Lionel Laurent
LONDON, Sept 25 (Reuters) - European equities ended a rocky week with a 3 percent surge as investors bet that a Volkswagen-led VOWG_p.DE sell-off had gone too far and bond yields jumped on renewed talk of an interest rate hike in the United States.
Europe's rebound lifted U.S. stock futures, which pointed to a 1.5 percent rise at the open on Wall Street ESc1 , but contrasted with a tepid performance on Asian markets where stocks were in the red after data showed Japan slipping back into deflation. ID:nL4N11U5EQ
The rally in Europe wasn't enough to prevent a decline on the week, but it was the biggest one-day rise in a month and the third-biggest this year.
European autos .SXAP were the biggest sectoral gainer, though they were still set for their heaviest weekly drop in over four years. Volkswagen (XETRA:VOWG) will reportedly bring in the head of its Porsche car brand as new chief executive, as it fights the fallout from the U.S. vehicle emissions test scandal. ID:nL5N11U2I6
"Things got a bit out of hand in Europe, the way stocks got dumped ... People cannot refuse to start buying," said Markus Huber, trader at Peregrine & Black.
"We are just so oversold in the short term."
Bank of America Merrill Lynch (NYSE:BAC) echoed that on Friday, saying investor bearishness was now at its most extreme in four years. Or put another way, the market was giving its strongest "buy" signal for four years.
At 1130 GMT the pan-European FTSEurofirst 300 .FTEU3 was up 3 percent at 1,378 points. Blue-chip indexes in London, Paris and Frankfurt were up between 2.5 and 3.5 pct
The past week has seen big trading swings on financial markets in the wake of the U.S. Federal Reserve's decision to keep interest rates unchanged, dampening expectations of a gradual return to normality for the world's largest economy after eight years of rock-bottom interest rates.
But Fed Chair Janet Yellen said on Thursday that she expects the U.S. central bank to begin raising interest rates this year as long as inflation remains stable and the U.S. economy is strong enough to boost employment. ID:nL1N11U2VK
Her comments saw German Bund yields and the U.S. dollar rise. The dollar index .DXY hit its highest level since August and was on track for its best week since mid-July, while gold prices dropped from their highest in a month.
The euro fell 0.6 percent to $1.1164 EUR= from around $1.1230 before Yellen's speech, while the dollar was up around 0.8 percent at 121 yen JPY= , from around 120.00 yen.
"The speech has prompted a shift in the probability of a federal funds rate increase in December," said Derek Halpenny, FX strategist at BTMU in London.
Bond yields rose across the board. The two-year U.S. Treasury yield rose 4 basis points to 0.72 percent US2YT=RR and the 10-year yield rose 5 basis points to 2.17 percent US10YT=RR .
Oil markets rose on Friday as strong seasonal demand from China outweighed weak consumer data from Japan, although analysts said that the slowing global economic outlook meant that oil prices would likely remain low for months to come.
U.S. crude CLc1 was up 1 percent to $45.36 per barrel, while Brent crude LCOc1 was up 0.4 percent to $48.36.