* Shares surge 3 pct after sell-off seen as overdone
* Asian shares end weak after Japanese prices fall
* Dollar gains 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-fuelled VOWG_p.DE sell-off had gone too far and renewed talk of an interest rate hike in the U.S. eased some fears over the economic outlook.
Europe's rebound contrasted with a tepid performance on Asian markets, where stocks were in the red after data showed Japan's core consumer prices had fallen for the first time since a massive stimulus programme launched by the central bank. ID:nL4N11U5EQ
The European autos sector .SXAP was the biggest sectoral gainer, though it was still set for its worst weekly loss in over four years. Volkswagen (XETRA:VOWG) is reportedly due to 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."
The pan-European FTSEurofirst 300 .FTEU3 was up 3.2 percent at 1,380.16 points at 0956 GMT. Blue-chip indexes in London, Paris and Frankfurt were up between 2.6 and 3.6 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, which appeared to break with the narrative of a 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, while gold prices dropped from their highest in a month.
The euro tumbled about 0.6 percent to $1.1164 EUR= from around $1.1230 before Yellen's speech, while the dollar was up around 0.2 percent at 120.32 yen JPY= , from around 120.00 yen.
"Despite what Yellen said, there is still no guarantee that the Fed will hike rates this year. As such, the dollar is likely to lack clear direction," said Masafumi Yamamoto, senior strategist at Monex in Tokyo, who expects the pair to stick to a 118-122 yen range for a while.
Some said it was a broadly positive signal for markets. "It would be a good thing to see rates come off from low levels...If they stay continuously low it's not a good sign of a healthy economy," said Huber.
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 34 cents to $45.24 per barrel, while Brent crude LCOc1 was up 12 cents to $48.30.