LONDON: European stocks headed for their best monthly gains this year on Friday as the third quarter drew to a close, while Volkswagen shares sank after the German carmaker said it had to increase provisions for settlements in North America.

A weakening euro has taken pressure off Europe's equities and the exporter-heavy DAX especially, and helped investors find renewed enthusiasm for the asset class after the slow summer months.

The pan-European STOXX 600 steadied at a two-month high, while euro zone stocks hit their highest in three months, on track for a quarterly gain after falling back in the second quarter.

Volkswagen shares dropped 3.5 per cent after the car manufacturer said it was increasing its provisions for settlements in North America over its diesel cheating scandal.

Porsche shares also fell 3.2 per cent.

Dutch bank ABN AMRO rose 2.1 per cent after Morgan Stanley raised its rating on the stock, saying it expected dividend payouts to increase.

Covestro gained 2 per cent after Bayer further reduced its holding in the plastics producer to under 25 per cent.

An upgrade to "outperform" from Exane BNP analysts boosted satellite communications firm Eutelsat up 2.5 per cent.