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NEW YORK/LONDON - World stock markets rallied on Thursday and the U.S. dollar retreated from one-month highs as worries faded about contagion from China Evergrande and as investors digested the Federal Reserve's plans for reining in U.S. stimulus.

Wall Street's main indexes all ended up at least 1% following solid advances in European markets.

MSCI's gauge of stocks across the globe jumped 1.01%, its biggest percentage rise in a month and for a third straight session of gains that brought it all the way back from Monday, when it posted its biggest percentage drop in two months after fears linked to debt-laden property group Evergrande.

It was a case of “unwind of the fear from what happened in China. Markets got over-sold and pessimistic very quickly and then you have basically seen a buy-the-dip mentality,” said Keith Lerner, co-chief investment officer at Truist Advisory Services.

Evergrande shares jumped 18% ahead of a key debt payment deadline. Gold prices dropped as safe-haven trades faded.

Investors were still mulling implications from the Fed's policy statement on Wednesday that it should begin reducing monthly bond purchases as soon as November and signalled interest rate increases may follow more quickly than expected.

“In some ways, the Fed had prepared investors that they were going to taper and somehow just getting that news out there even if some people perceived it as more hawkish is like a sigh of relief,” Lerner said.

On Wall Street, the Dow Jones Industrial Average rose 506.5 points, or 1.48%, to 34,764.82, the S&P 500 gained 53.34 points, or 1.21%, to 4,448.98 and the Nasdaq Composite added 155.40 points, or 1.04%, to 15,052.24.

The pan-European STOXX 600 index rose 0.93%.

Norway's central bank raised its benchmark interest rate and said it expects to hike again in December, joining a growing list of nations moving away from emergency-level borrowing costs. Norway's crown strengthened versus the euro to its highest since mid-June.

In other currency trading, the dollar index fell 0.428% after hitting a one-month high and the euro rose 0.45% to $1.1739. The Japanese yen weakened 0.46% at 110.31 per dollar.

Sterling was last trading at $1.3722, up 0.71%, after the Bank of England said two policymakers had voted for an early end to government bond buying and markets brought forward expectations of an interest rate rise to March.

Benchmark U.S. 10-year notes last fell 30/32 in price, pushing the yield to 1.4336%, its highest since early July, from 1.331% late on Wednesday. Key Euro area bond yields also climbed after hawkish signals from central banks.

Oil prices rose, supported by growing fuel demand and a draw in U.S. crude inventories as production remained hampered in the Gulf of Mexico after two hurricanes.

U.S. crude settled up 1.5% at $73.30 per barrel and Brent settled at $77.25, up 1.4% on the day.

Spot gold dropped 1.3% to $1,745.29 an ounce.

(Additional reporting by Sujata Rao in London and Alun John in Hong Kong; Editing by Hugh Lawson, Alex Richardson, Steve Orlofsky, Catherine Evans and David Gregorio)