By William Boston

BERLIN--Volkswagen AG's emissions-cheating scandal took a hefty dent out of sales of its VW brand in 2016, but strong growth in China and Eastern Europe helped offset declines in other major markets.

Shares of Volkswagen rose strongly Monday after it said VW-brand car sales increased significantly in December and after a senior executive voiced hope that the company would soon resolve a criminal investigation in the U.S.

Sales of the VW brand, which makes the popular Golf compact and Tiguan sport-utility vehicle, rose 2.8% world-wide to 5.9 million vehicles, driven by 14% growth in new car sales in China and nearly 7% growth in Central and Eastern Europe.

Volkswagen shares were up 3.8% at EUR144.30 ($151.99) at 11:35 a.m. GMT.

VW brand new car sales surged to 2.9 million in China in 2016, reasserting the country's position as Volkswagen's biggest source of growth. Sales plunged 9% in Australia and VW sales were banned in South Korea in the wake of the diesel crisis.

In other major markets, VW brand's new car sales fell sharply.

Volkswagen brand sales in the U.S. and Canada were hit by the diesel scandal, which was the subject of civil litigation and criminal investigations in 2016.

Volkswagen has agreed to pay up to $17.5 billion in compensation to U.S. consumers and appears close to settling a criminal investigation with the Justice Dept. that could add up to $3 billion to the bill.

In the U.S., new car sales fell nearly 8%, to 322,900 vehicles in 2016. A 14.7% increase in Mexico, to around 198,000 vehicles, slowed the overall sales decline in North America to 1.9%.

Volkswagen's market share in Western Europe, it is second-largest market after China, declined steadily in 2016 after the company admitted in 2015 to rigging nearly 11 million diesel engines to cheat on emissions tests.

Western European new car sales rose 5.8% to 13.9 million vehicles in 2016, according to LMC Automotive. But Volkswagen brand sales in the region fell 2% to 1.47 million vehicles.

Western European sales were stunted by a 7.2% decline to 557,800 cars in its home market Germany.

The erosion of sales in Germany was largely due to an extension of leasing contracts for VW employees. Volkswagen's in-house bank sought to prop up used car prices by restricting supply by moving the expiration date on some leases to April 2017 from October 2016. Used-car values were hit by the fix for tainted diesel vehicles, which some experts say has increased fuel consumption on the affected vehicles.

In Brazil, where VW was long the market leader, sales continued to slide in 2016, falling 35% to 218,200 amid a broad downturn in the economy.

Volkswagen brand sales appeared to improve late in 2016, suggesting that 2017 could mark a turnaround. In December, world-wide sales of VW brand cars rose 16.4% to 567,900 vehicles. All major markets except Germany and Russia grew last month.

New VW models launched in the U.S. late in 2016, such as the Golf Alltrak and the Atlas sport-utility vehicle, fueling a 20% increase in the VW brand's U.S. sales to 37,200 for the month.

But the overall outlook for 2017 is murky. In Western Europe, VW's core home market, growth in new car sales is expected to slow to around 1.5% this year. The new U.S. administration could impose tariffs on Mexican-built auto imports, which could have an impact on sales of Volkswagen vehicles from the VW brand and Audi, which manufacturethere. And if tension with China grows once President-elect Donald Trump takes office, that could impact the ability of Western auto makers to do business there.

Friedrich Geiger contributed to this article

Write to William Boston at william.boston@wsj.com

(END) Dow Jones Newswires

January 09, 2017 07:45 ET (12:45 GMT)

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