* Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh
* MSCI All-Country World Index set for best Jan since it began
By Marc Jones
LONDON, Jan 31 (Reuters) - Soothing sounds from the Federal Reserve propelled world stocks to their best January on record on Thursday, although having scored stellar gains this time last year only to flop spectacularly, traders were trying not to get too carried away.
The Fed said it would pause its 3-year interest rate rise campaign while assessing the weakening of the economy.
Crucially, it also said that the rundown of its balance sheet - or the stockpile of bonds it has accumulated over the past 10 years of quantitative easing - could slow too.
That ticked all the boxes for financial markets, and saw Europe's bulls push London, Frankfurt and Paris up 0.7 to 1 percent after Wall Street and then Asia had both charged overnight.
Added together it lifted the $4 trillion MSCI world stocks index, which tracks 47 countries, up 0.5 percent and for the 20th day out of the last 23.
For January it is up more than 7.2 percent which is its best January since the index began in 1988 and the best performance in any month since December 2015.
"The rally really does lift all boats," said Pictet emerging market portfolio manager Guido Chamorro.
The gains were matched in bond markets. Benchmark U.S. Treasury yields, which tend to set the bar for global borrowing costs, had dived significantly and Europe's big move saw Italian 2-year yields hit their lowest since May.
But was all pain for the dollar. It was struggling near a three-week trough against its major peers and emerging market currencies rose almost in unison having been steamrollered by the greenback last year.
"Risk assets are dancing in the streets and the dollar's down in the dumps," Societe Generale strategist Kit Juckes said.
"We may yet get a (Fed) rate hike in June, but if what matters is where policy's heading in the medium term, the FX market would overlook that and sell the dollar anyway."
U.S. stocks were also expected to open higher later after the Fed's boost had dovetailed with reassuring tech earnings on Wednesday, and with Amazon due to report later.
Apple shares had jumped almost 7 percent after it soothed its China worries. Facebook shares then leapt 11 percent after hours after it had reported better-than-expected profits following a year of high profile data scandals.
MSCI's broadest index of Asia-Pacific shares then rose to its highest since October helped by a 1 percent jump on Japan's Nikkei which shrugged off the normal headwind of a higher yen.
The main emerging market index skipped to a more than 8 percent January gain. while the Shanghai Composite Index climbed 0.3 percent despite data showing China's factory activity contracted for a second straight month.
With the Fed decision out of the way, investors focused their attention on a pivotal round of high-level U.S.-China trade talks aimed at easing a months-long tariff war.
The two-day talks which began in Washington on Wednesday are expected to be tense, with little indication so far that Beijing is willing to address core U.S. demands to budge on trade practices and fully protect American intellectual property rights.
If the two sides cannot reach a deal soon, Washington has threatened to more than double tariffs on Chinese goods on March 2.
In the commodity markets, oil prices rose for a third day, pushed up by lower imports into the United States amid OPEC efforts to tighten the market, and as Venezuela struggles to keep up its crude exports after Washington imposed sanctions on the nation.
U.S. West Texas Intermediate (WTI) crude futures were at $54.47 per barrel, up 24 cents, or 0.4 percent, from their last settlement. Brent was up 36 cents, or 0.6 percent, at $62.01 per barrel.
Back in the currency markets, the pound was a shade higher at $1.3127, while gold held near an eight-month high of $1,323 an ounce hit in the previous session as its buyers also cheered the weak dollar.
"The Fed dropped a commitment to gradual rate hikes from its policy statement ... U.S dollar's plunge alongside treasury bond yields have burnished the relative appeal of gold," said Ilya Spivak, senior currency strategist with DailyFx. (Additional reporting by Abhinav Ramnarayan in London and Nallur Sethuraman in Bangalore; Editing by Alison Williams)