* FTSEurofirst 300 up 0.1 pct, sets 7-1/2 year high
* VW up as industry data shows shift to mainstream
By Francesco Canepa
LONDON, March 17 (Reuters) - European shares set 7 1/2-year highs on Tuesday, boosted by gains in Volkswagen after an encouraging report on auto sales.
Shares in Volkswagen rose 1.9 percent after industry data showed new car registrations in Europe rose 7 percent in February, with demand shifting from no-frills makes like Dacia toward mass-market brands like VW.
The pan-European FTSEurofirst 300 index was up 0.1 percent at 1,596.94 points at 0844 GMT, after climbing to its highest level since late 2007 at 1,598.03 points.
The index has risen 16.5 percent so far this year as bond purchases from the European Central Banks drove yields on government debt to record lows, leading investors to seek higher returns in equities.
Germany's 10-year Bund yields yield less than 0.3 percent, compared with a 3 percent yield for the FTSEurofirst.
"There is still strong appetite for stocks," said Mike Reuter, a broker at Tradition. "Everyone is hoping for a pause but, with the Bund yield at 20 basis points, that money has to flow somewhere."
UK retailer Sainsbury's rose 0.3 percent after a trading update. Analysts said a 1.9 percent fall in underlying sales, while marking a fifth straight quarter of decline, was better than the market had feared.
"This is a solid number in an industry with -1.6 percent deflation and extra space still coming on," analysts at Bernstein wrote in a note.
Europe bourses in 2015: link.reuters.com/pap87v
Asset performance in 2015: link.reuters.com/gap87v
Today's European research round-up (Editing by Larry King)