UPDATE 2-European shares gain, auto rally lifts Germany to record high

(For a Reuters live blog on U.S., UK and European stock markets, click LIVE/ or type LIVE/ in a news window)

* Volkswagen (DE: VOWG_p ) shares eye best week on record

* Autos and banks sectors lead gains

* Fed's dovish outlook supports global mood

* FTSE 100 rises after BOE announcement (Adds comments, updates prices throughout)

By Sruthi Shankar and Shreyashi Sanyal

March 18 (Reuters) - Automakers lifted the German DAX share index to a record high on Thursday, while broader European stocks inched towards all-time highs after the U.S. Federal Reserve vowed to keep interest rates low despite forecasting a surge in economic growth.

An index of euro zone's top 50 companies .STOXX50E gained 0.5%, briefly surpassing its peak hit in February last year, before the COVID-19 pandemic hammered financial markets.

Germany's blue-chip DAX .GDAXI rose 1.2%, France's CAC 40 .FCHI was up 0.1%, while Britain's FTSE 100 .FTSE reversed declines after the Bank of England said Britain's economic recovery was gathering pace and left policy rates unchanged. tells us the Bank is much more closely aligned with the Federal Reserve's attitude to recent market moves than the ECB's," said James Smith, developed markets economist at ING.

The pan-European STOXX 600 .STOXX rose 0.4%, but eased from early highs due to losses in utilities .SX6P , chemicals .SX4P and food & beverage .SX3P stocks.

With the 10-year U.S. Treasury yield US10YT=RR rising after the Fed decision, economically sensitive sectors such as automakers .SXAP , banks .SX7P and miners .SXPP led the gains in Europe. recent rise in government bond yields has stoked worries about a pickup in inflation as trillions in dollars of stimulus help global economies emerge from the pandemic shock.

However, European stocks have benefited as a rise in yields sparked rotation into some of the cheaply valued sectors such as banks and energy on hopes of a strong economic rebound.

"We expect further upside for bond yields in response to sharp acceleration in global growth, rising inflation and reduced monetary policy accommodation," said Milla Savova, European equity strategist at Bank of America Merrill Lynch (NYSE: BAC ).

"In combination with our expectations for a euro area PMI rebound and rising oil price, this would imply around a further 15% outperformance of value versus growth by late Q3."

Volkswagen VOWG.DE jumped 6.0%, sealing its position as the most valuable company in Germany's DAX after it overtook software maker SAP SAPG.DE on Wednesday. shares have racked up a 41.8% gain so far this week and are on course to record the biggest weekly gain ever after it stepped up its switch to fully electric vehicles. lender Credit Suisse CSGN.S gained 2.5% after it said it was overhauling its asset management business amid regulatory investigations into its dealings with collapsed Greensill Capital. equipment maker Nokia NOKIA.HE slipped 5.7% despite forecasting a pick up in profit margins to 10%-13% in 2023. online pharmacy chain Zur Rose ROSEG.S fell 12.6% to the bottom of STOXX 600 after disappointing full-year results and outlook.