By Sudip Kar-Gupta
LONDON (Reuters) - European shares rose on Wednesday as Federal Reserve Chair Janet Yellen called for caution on raising interest rates, boosting equities, while German retailer Metro (DE:MEOG) surged on demerger plans.
The pan-European FTSEurofirst 300 index (FTEU3) advanced 1.2 percent. Germany's DAX (GDAXI) gained 1.2 percent while the euro zone's blue-chip Euro STOXX 50 index (STOXX50E) rose 1.2 percent.
The FTSEurofirst still remains down 7 percent since the start of 2016, due to concerns about a China-led global economic slowdown.
Such risks were one reason as to why Yellen said on Tuesday that the U.S. central bank should proceed only cautiously as it looks to raise interest rates.
Hampstead Capital hedge fund manager Lex Van Dam said Yellen's comments highlighted how measures from the Fed and European Central Bank (ECB) to try to keep rates low were hitting returns on bonds and cash, and pushing investors towards the better returns on offer from stocks.
"Equity markets remain supported by the global central banks - the economy might not be in great shape but with real rates in negative territory, there are not many other places to find a return," said Van Dam.
Yellen's comments weakened the U.S. dollar on currency markets, which in turn supported the shares of mining and energy companies since a weaker dollar makes commodities more affordable for investors holding other currencies.
Metro AG also jumped 7.5 percent after the company proposed to split itself in two, with its wholesale and food business transferred to a separate entity and the consumer electronics business remaining part of the existing company.
French transport group Alstom (PA:ALSO) also rose 4 percent as investors welcomed Alstom's new financial targets.
