* Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh
* MSCI All-Country World Index set for best Jan since it began
* Fed slams brakes on rate hikes, dollar and Treasury yields skid
* Italy leads dive in European bond yields
* Facebook gets lots of likes after better than expected results
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 bolt from the bulls came as the Fed said it would pause its three-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. Wall Street and Asia both rallied and Europe ran up as much as 1 percent until news that Italy was back in recession and other poor data took the wind out of the sails of most markets bar London .
Futures pointed to the U.S. S&P 500 and Nasdaq both rising later though. That likely move added with Asia's gains lifted the $4 trillion MSCI world index, which tracks 47 countries, for the 20th day out of the last 23.
For January it is up more than 7 percent, which is its best January since the index began in 1990 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 for stocks 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 it 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 crushed 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 set for another packed day of data and earnings.
Jobless claims figures had already come out showing a 1-1/2 year high, Electric carmaker Tesla missed forecasts again but General Electric surged, marked up almost 10 percent after it beat estimates.
Internet shopping behemoth Amazon was the other big focus with it set to report after the closing bell.
Apple shares jumped almost 7 percent on Wednesday after soothing China worries while Facebook shares leapt 11 percent after hours on better-than-expected profits following a year of high profile data scandals.
MSCI's broadest index of Asia-Pacific shares 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.
"We were underweight emerging markets. We have changed that yesterday," said Lyxor Asset Management Chief Investment Officer Guillaume Lasserre.
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.
Donald Trump tweeted that talks were "going well" but "No final deal will be made until my friend President Xi, and I, meet in the near future to discuss and agree on some of the long standing and more difficult points."
In the commodity markets, industrial metals were up and oil 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 $54.39 per barrel, up 16 cents, or 0.3 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.
Additional reporting by Abhinav Ramnarayan in London and Nallur Sethuraman in Bangalore; Editing by Alison Williams and Jon Boyle