* Euro jumps, dollar index tumbles after Yellen comments
* Oil recovers only briefly as U.S. stockpile forecast weighs
* Gold rallies the most in two weeks (Adds reaction to Yellen comments; updates prices)
By Rodrigo Campos
NEW YORK, March 29 (Reuters) - The U.S. dollar dropped sharply and stocks on Wall Street moved higher after Federal Reserve Chair Janet Yellen said the Fed should proceed "cautiously" when it raises interest rates.
Crude oil prices cut losses but later succumbed to oversupply pressure.
"Given the risks to the outlook, I consider it appropriate for the Committee to proceed cautiously in adjusting policy," Yellen said in remarks to the Economic Club of New York.
Yellen's comments, her first since the press conference after Fed held rates steady two weeks ago, appeared to contradict more recent hawkish comments from several of her colleagues. dollar fell sharply against a basket of currencies in reaction to Yellen and dollar-priced commodities pared losses. The Thomson Reuters Core Commodity index .TRJCRB was down 0.7 percent after earlier having fallen as much as 1.4 percent.
"It pretty much follows the script we saw coming out of the (Fed's) March meeting and reconfirms (Yellen) is still in the dovish camp," said John Augustine, chief investment officer at Huntington National Bank. "Yellen took the dovish side in the great Fed debate and markets are reacting uniformly to her comments."
On Wall Street, technology shares led gains in major indexes while energy shares, which had been the largest weight on the S&P 500 with a 1.7 percent decline, were down 0.8 percent.
The Dow Jones industrial average .DJI rose 44.07 points, or 0.25 percent, to 17,579.46, the S&P 500 .SPX gained 7.53 points, or 0.37 percent, to 2,044.58 and the Nasdaq Composite .IXIC added 47.91 points, or 1.01 percent, to 4,814.70.
The pan-European FTSEurofirst 300 .FTEU3 stock index ended up 0.5 percent, before Yellen's remarks. MSCI's index of shares in major world markets .MIWD0000PUS rose 0.4 percent.
LOWER GREENBACK
The euro EUR= hit its highest in six days versus the dollar at $1.1272 and the dollar index .DXY fell 0.6 percent, the most since March 17.
"It was definitely dovish," said Richard Scalone, co-head of foreign exchange at TJM Brokerage in Chicago, in reference to Yellen's speech. "This is another push in the direction of fewer interest rate increases."
Brent crude oil LCOc1 fell 3.1 percent to $39.04 a barrel and U.S. crude CLc1 lost 3.2 percent to $38.15. Both cut the decline to near 2 percent shortly after Yellen's prepared remarks hit the wires.
Oil prices are up about 50 percent from 12-year lows near $27 touched in January. But the rally has eased in recent days as supply looks set to keep rising. O/R
A preliminary Reuters survey of analysts showed U.S. oil stockpiles measured by the American Petroleum Institute were expected to reach record highs.
Benchmark 10-year Treasury notes US10YT=RR were last up 11/32 in price for a yield of 1.835 percent, down from 1.872 percent late on Monday.
Spot gold XAU= jumped 1.1 percent to $1,234.50 per ounce after hitting a one-month low on Monday.