* Dollar index falls the most in a month
* Wall Street rallies; boosts world share markets
* Brent, WTI fall despite dollar weakness (Updates prices, adds comment)
By Rodrigo Campos
NEW YORK, March 12 (Reuters) - Stocks on major markets rose on Thursday as the dollar softened the most in a month against major currencies after surprisingly weak U.S. data.
The U.S. currency retraced its gains after earlier hitting a 12-year high versus the euro, pressured by a third-straight decline in monthly U.S. retail sales. However, the data was not weak enough to alter a recent shift in views that the Federal Reserve is getting closer to raising rates.
Oil futures fell as estimates showed another big supply build at the delivery point for the U.S. crude contract.
Stocks on Wall Street posted their biggest gains since early February. Bank shares were among the leaders after the Federal Reserve approved most of their capital plans, triggering an avalanche of buy-back and dividend hike announcements.
The S&P 500, however, was still on track to post its third consecutive weekly decline, hit by the prospect of higher U.S. interest rates and the effect of the strong dollar on corporate earnings. The much stronger-than-expected payrolls report last Friday cemented views of a rate hike coming sooner than previously expected.
The soft February retail sales data should not move the conversation in regard to monetary policy, according to Art Hogan, chief market strategist at Wunderlich Securities in New York.
"Online sales were actually pretty good, which would indicate there was some weather impact," he said.
"There's a little relief after such a significant move in the dollar," he added. "The (equities) market acts like a coiled spring, and rebounds."
The Dow Jones industrial average rose 259.83 points, or 1.47 percent, to 17,895.22, the S&P 500 gained 25.71 points, or 1.26 percent, to 2,065.95 and the Nasdaq Composite added 43.35 points, or 0.89 percent, to 4,893.29.
MSCI's main world stocks index rose 1 percent, the most in a month and its first gain in five sessions. The FTSEurofirst 300 index of top European shares ended flat after touching a 7-1/2-year high.
The euro bounced back from 12-year lows hit overnight under pressure from the European Central Bank's 1 trillion euro bond purchase program that began this week.
The bloc's single currency was up 0.6 percent at $1.0604 after earlier hitting $1.0494.
The dollar index, which measures the greenback against a basket of major currencies, fell 0.5 percent to 99.27 after touching 100 for the first time since April 2003.
The dollar has strengthened on the diverging policies of the Fed against other major central banks. In addition to the ECB, other central banks becoming more accommodative include those of Japan and South Korea, which surprised with an interest rate cut hot on the heels of one from Thailand. A cut in Serbia's repo rate took the number of central banks around the world that have cut rates this year to 24.
The Fed's policy-setting committee meets next week.
"I think we're finally seeing some early signs of fatigue in the dollar's rally," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington, D.C.
"Caution is on the rise ahead of next week's Fed meeting. On the one hand, steady job growth has many expecting the Fed to lay the groundwork for an eventual rate hike. But this rapid rise in the dollar could warrant a warning from the Fed as a potential threat to growth," he said.
Brent and U.S. crude surrendered early gains in volatile trading before the expiry of their front-month contracts and on fears of a supply build at the Oklahoma delivery point for U.S. oil.
"The Cushing estimate shows more of the same old for U.S. crude - intense amounts of supply and shaky demand," said John Kilduff, partner at New York energy hedge fund Again Capital.
The reopening of the Houston Shipping Channel for oil imports and the potential approach of a deal to end a U.S. refinery workers strike contributed to market bearishness, traders said.
Brent fell 0.7 percent to $57.16 a barrel, while U.S crude futures dropped 2.3 percent to $47.05 a barrel.
Copper prices rose 2 percent as the greenback weakened, even as demand for spot copper in China strengthened only marginally this week after most factories returned from near month-long Lunar New Year holidays.
Spot gold, however, was down 0.1 percent to post its ninth consecutive daily decline.
U.S. debt prices pared gains after a soft bond auction. Yields on the benchmark 10-year note ticked down to 2.1086, from a close of 2.11 on Wednesday. The 30-year U.S. Treasury bond was last down 7/32 and yielding 2.694 percent, compared with 2.683 percent late on Wednesday. (Reporting by Rodrigo Campos; Additional reporting by Daniel Bases and Barani Krishnan; Editing by Dan Grebler and Leslie Adler)