Euro zone bond yields fall, stocks, sterling rally on Yellen speech

LONDON (Reuters) - Bond yields in the euro area fell and stock markets rallied on Wednesday following comments by U.S. Federal Reserve chief Janet Yellen.

In a prepared testimony to be delivered to Congress, Yellen said the U.S. economy is healthy enough to absorb further gradual rate increases and the slow wind down of the Fed's bond portfolio.

The pan-European STOXX 600 equity index extended gains to hit a session high, up 1 percent with all sectors in positive territory.

Government bond yields across the bloc extended their declines, with Germany's benchmark Bund yield hitting its lowest level in almost a week at 0.514 percent.

Sterling jumped to the day's high of $1.2910 as the dollar weakened broadly, up from $1.2870 before the speech was published.

(Reporting by the London Markets Team; Editing by Abhinav Ramnarayan)