By Atul Prakash and Alistair Smout
LONDON (Reuters) - Britain's top share index moved higher on Wednesday, led by financial stocks as banks made up some ground on bargain-hunting after three straight sessions of losses.
However, gains were curtailed after Federal Reserve Chair Janet Yellen said that the Fed should be able to gradually adjust monetary policy thanks to strength in the U.S. economy, despite growing concerns over global growth.
The blue-chip FTSE 100 index rose 40.11 points, or 0.7 percent to 5,672.30 by the close. Concerns over growth had seen the index fall more than 1 percent in the previous session, and the benchmark index is down nearly 9 percent so far this year.
The UK banking index rose 1.7 percent after slumping more than 8 percent since Monday, as investors fretted about the health of the sector and the global economy.
Press reports said Deutsche Bank (DE:DBKGn) and Credit Suisse (VX:CSGN) were taking measures to reassure the market following recent falls.
The financial sector contributed nearly 26 points to the market's rise.
"Financial stocks in general are finding some support after the torrid start to the week, but this looks more like opportunistic bargain hunters dipping a toe in the water rather than a wholesale shift in sentiment," said Tony Cross, analyst at Trustnet Direct.
Tesco (L:TSCO) rose 4.3 percent, bringing gains since the previous session to around 6 percent after a report on Tuesday by researcher Kantar Worldpanel said the company showed signs of improvement.
Shares in Worldpay rose 5.8 percent after Goldman Sachs (N:GS) raised its stance on the stock to "buy" from "neutral".
The FTSE 100 cut gains in volatile trade after a statement and testimony from Yellen, who said that the Fed was not likely to reverse course on rates, despite risks to the economic outlook.
"Markets did initially dip when the prepared comments were released and indicated no obviously dovish shift in policy," Jasper Lawler, market analyst at CMC Markets, said in a note.
"Ms Yellen said the committee is still expecting gradual path of rate rises but emphasised that monetary policy is by no means on a set path, it depends on incoming data."
Hikma Pharmaceuticals (L:HIK) fell 2.5 percent, having been down as much as 20 percent, after saying it would now pay $535 million less than an earlier offer to buy Boehringer Ingelheim's U.S. generic drugs business after due diligence revealed revenue would be lower than expected.
ARM Holdings (L:ARM) fell 4.4 percent, the biggest faller, after the British chip designer, whose technology powers smartphones, reported results that included a 17 percent rise in fourth-quarter profit.
Some brokers said that on an underlying basis, earnings just missed estimates, while others highlighted the risky outlook for the global economy.