* Dollar index falls the most in a month
* World shares see first rise in 5 days, Brent rises
* U.S. stocks gain, powered by bank shares (Updates to U.S. market trading, changes dateline; previous LONDON)
By Rodrigo Campos
NEW YORK, March 12 (Reuters) - The dollar softened the most in a month against a basket of currencies on Thursday, giving stocks and some commodities respite after sharp sell-offs triggered by expectations of the U.S. Federal Reserve raising interest rates.
The currency was further pressured by a third-straight decline in a monthly reading of U.S. retail sales, easing pressure on crude oil prices and other commodities priced in the greenback.
Stocks opened higher on Wall Street, led by bank shares after the Fed approved most of their capital plans, many of which included share repurchases and dividend hikes.
The S&P 500 is still on track for its third consecutive weekly decline as the prospect of higher U.S. interest rates and the strength of the dollar seen as a headwind for corporate earnings. A much stronger-than-expected payrolls report last Friday cemented views of a hike coming sooner than previously expected.
"I've been a believer in a June rate hike for a while, but the odds really went up on Friday, and the market action we've seen since then is in line with the volatility we've historically seen around rate hikes," said James Liu, global market strategist for JPMorgan Funds in Chicago.
The Dow Jones industrial average rose 202.51 points, or 1.15 percent, to 17,837.9, the S&P 500 was up 20.66 points, or 1.01 percent, to 2,060.9 and the Nasdaq Composite added 30.65 points, or 0.63 percent, to 4,880.59.
MSCI's main world stocks index rose 0.96 percent, posting its first gain in five sessions. The FTSEurofirst 300 index of top European shares was up 0.1 percent, after touching a 7-1/2 year high on the European Central Bank's 1 trillion euro bond purchase program that began this week.
The euro bounced back from 12-year lows hit overnight under pressure from the ECB's program. The bloc's single currency was up 0.7 percent at $1.0621 after earlier hitting $1.0494.
The dollar's strength is due to diverging policies of the world's major central banks. Besides the expectation for Fed rate hikes and the ECB easing, Japan's central bank is also busy printing money.
Asian stock markets were lifted by a surprise interest rate cut by South Korea that came hot on the heels of one from Thailand. A cut in Serbia's repo rate on Thursday 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.
The dollar index, which measures the greenback against a basket of currencies, fell 0.7 percent to 99.08.
Crude oil futures diverged, with Brent rising toward $58 a barrel as the dollar weakened, while U.S crude futures fell below $48 a barrel after industry monitors estimated another big stock build at the Cushing, Oklahoma, delivery point.
Copper prices rose 1.6 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, posted its ninth consecutive daily decline.
The 30-year U.S. Treasury bond was last up 23/32 and yielding 2.652 percent, compared with 2.683 percent late Wednesday. Yields on the benchmark 10-year note were last at 2.070 percent, reflecting a price rise of 12/32.
The German benchmark rose 4 basis points to yield 0.242 percent.
Additional reporting by Daniel Bases and Ryan Vlastelica; Editing by Dan Grebler