FRANKFURT (Reuters) -Rheinmetall, Europe's biggest ammunition maker, has overtaken the continent's top carmaker Volkswagen in terms of market valuation, in the latest sign of soaring investor appetite for defence stocks.

Rheinmetall's market capitalisation stood at around 56.2 billion euros ($61.1 billion) as of 0848 GMT, compared with 54.7 billion euros for Volkswagen.

Defence stocks across Europe have sky-rocketed in recent weeks, driven by efforts across the continent to ramp up military spending in response to U.S. pressure on governments to step up.

Rheinmetall shares have been one of the biggest beneficiary of that trend, more than doubling since the beginning of the year and rising more than twelve-fold since Moscow invaded Russia in February 2022.

Jefferies on Thursday initiated coverage on European defence stocks, rating Rheinmetall "buy" and singling out the company as its top pick.

"We have seen a clear paradigm shift in Europe around defence spending," the brokerage wrote. "This has been triggered by the risk of the U.S. removing support to Ukraine in the ongoing war and also the perception of its protection granted to Europe being at risk, especially in the context of a potential conflict with Russia."

($1 = 0.9195 euros)