ABS engine and Tracs lights are on the dash, scanned for codes and got a P0500 vehicle speed sensor code. After a thorough research I concluded that it must be the ABS module, as it was unlikely to be the wheel sensor as I was told some mechanics have never replaced one. This is not a big deal after all I have replaced the ABS module on my previous car (an 850), 15min job should be done. O.K. I got a used ABS module from a '99 car installed it and .... wtf same crappy lights are still on!
So it must be the wheel sensor but which one?. Went to a Volvo specialized shop and had them tell me that it was the left wheel sensor. At home I removed the sensor at the wheel and found no physical damage on the sensor part, the axle splines looked clean then I tried to check resistance for circuit continuity but was unable to, I was told that you can't hook up an ohm meter on '99 and up model this way (someone confirm this).
Out of frustration I went to look at the left sensor again tonight with my son explaining to him the step by step process of looking for the culprit of the trouble lights when I noticed the cut in the sensor wire! what a relief to finally find it. BTW if you look at the attached picture you will see that it looks like the insulation shielding was cut with a knife right through one of the wires!? how? I will have it repaired in our shop tomorrow.
Anyways I just wanted to share this little story with you so that you can expect the unexpected in your own troubleshooting.
cheers

 

I've had the wire fixed, installed it and cleared the codes. The engine light and the P0500 code are gone but the ABS and tracs still there. Looks like the ABS module will also have to be redone ... oh well. BTW the cut on the wire may not be from a knife but possibly from rubbing against the connecting rod.

 

Did you clear the codes in the ABS module?

 

I have an Innova 3100a code reader, somewhat limited (basic) it does not read any ABS codes. I was thinking that the ABS and tracs light will go out by itself when the module is fixed like it did on the old 850.

 

If you just had a wheel sensor code it will need to be cleared. The light itself might go out but the codes will still be there.