PREHEAT oven to 350°F. Microwave chocolate and butter in large microwaveable bowl on HIGH 2 min. or until butter is melted, stirring after 30 sec. Stir until chocolate is completely melted. Blend in milk and vanilla. Add flour and walnuts; mix well. (Dough will be stiff.)

SHAPE 1 level tablespoonful of dough around each caramel half, enclosing caramel completely. Roll in sugar. Place, 1 inch apart, on ungreased baking sheets.

BAKE 6 to 8 min. or until cookies are until soft and shiny. Let stand 5 min. on baking sheets. Transfer to wire racks; cool completely. (Cookies will firm up as they cool.)