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Could be a faulty IAC valve. You could try unplugging the connector to the IAC valve and see if the idle stops going up and down. (The engine may also stall - which would not necessarly be an indication of failure.) If the idle does stop going up and down then I would suspect that it is the IAC valve. Even when they are clean and move well, the motor in the IAC can have a dead spot - and I think that this can cause the idle surge. I found one in mine a few years ago by testing with an ohm-meter and moving the valve - at one point the resistance went very high, indicating the dead spot in the motor. Also check the FAQ for a lots more info on the IAC valve.
Steve
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1986 745 w/ M46 200K since new, 1995 965 104K
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