* Fed raises rates as expected, "dot plots" surprise on
* Wall St slips, most Asia stocks follow
* Dollar hits 14-yr high on currency basket, 10-mth peak on
* European shares seen slightly weaker
* Oil stabilises after paring this week's gains
By Wayne Cole and Hideyuki Sano
SYDNEY/TOKYO, Dec 15 Asian shares and currencies
softened on Thursday after the Federal Reserve raised rates for
the first time in a year and hinted at the risk of a faster pace
of tightening than investors were positioned for.
Yields on short-term U.S. debt surged to the highest since
2009, sending the dollar to peaks not seen in almost 14 years,
which in turn prompted China's central bank to set the yuan at
its weakest level against the greenback since 2008.
The Fed's anticipated policy path, and expectations U.S.
President-elect Donald Trump will set growth on a higher gear,
are keeping Asian policymakers on edge as capital gets sucked
out from the fragile export-dependent regional economies toward
The Fed's rate rise of 25 basis points to 0.5-0.75 percent
was well flagged but investors were spooked when the "dot plots"
of members' projections showed a median of three hikes next
year, up from two previously.
"The markets were surprised by the dot plots. Given that the
10-year U.S. bond yield has risen above the key level of 2.5
percent, the sell-off in bonds is likely to continue," said
Hiroko Iwaki, senior strategist at Mizuho Securities.
The change came even as the Fed's economic projections have
hardly been upgraded, suggesting the Fed could accelerate
tightening even further if policymakers see firmer evidence of
higher growth or inflation.
"The U.S. economy is already on a solid expansion but the
new administration wants to do large-scale spending. That could
surely boost inflation and U.S. bond yields," said Norihiro
Fujito, senior investment strategist at Mitsubishi UFJ Morgan
Fed fund futures <0#FF:> slid to imply an almost 50 percent
chance that the Fed will raise rates three times, with two hikes
fully priced in already.
For Reuters Graphic on the Fed, click on
The 10-year U.S. Treasuries yields rose to 2.587 percent
, having risen more than 0.7 percentage point since
Trump was elected as the next U.S. President.
Yields on two-year Treasury paper jumped more
than 10 basis points to 1.28 percent, the biggest daily increase
since early 2015 and the highest level since August 2009. They
stood at 1.267 percent in Asia.
It also took the premium that U.S. Treasuries pay over
German two-year debt to its fattest since 2000.
The allure of higher U.S. yields raises risks for emerging
markets in Asia and elsewhere, as funds look to take advantage
of rising U.S. rates.
The Chinese central bank set the yuan mid-point at 6.9289 to
the dollar, its weakest since June 2008, though
market players noted that the yuan has been firmer against many
other currencies and rose on trade-weighted basis.
The yuan promptly fell to its lowest levels in
more than eight years, reflecting the weakening in the daily
Low-yielding currencies such as the Singapore dollar
and Korean won came under pressure, and analysts
anticipate the low-yielders will be on the back foot in an
environment of a rising dollar, higher U.S. yields and a
The challenges confronting Asia's policymakers from capital
outflows was highlighted in Thursday's South Korean central bank
The Bank of Korea held its key policy rate steady at a
record low of 1.25 percent and flagged growing risks for the
export-reliant economy that some analysts feel should be
tempered through another rate cut. But the BOK faces a dilemma
as further easing could spark destabilising capital flows toward
higher yielding U.S. dollar-based assets, forcing it to sit
tight for now.
The Singapore dollar fell near its January low and
is on the verge of slipping to its lowest September 2009.
Even high-yielding currencies in Asia could return some of
their recent gains if investors shy away from risk, Citi
analysts said in a note.
The U.S. dollar was already up across the board, hitting a
near 14-year peak against a basket of currencies at 102.62
The euro dropped to as low as $1.0468. A break below
its March 2015 low of $1.0457 could open the way for a test of
$1, or parity against the dollar, which last happened in late
The dollar rose to 117.86 yen, its highest level
since early February, though that drop in the yen cushioned
Japanese stocks, lifting Nikkei 0.1 percent.
MSCI's broadest index of Asia-Pacific shares outside Japan
dropped 1.2 percent.
European shares are expected to be open slightly weaker,
with spread-betters looking to a fall of 0.2 percent in
Britain's FTSE and a 0.1 percent drop in Germany's DAX
Wall Street suffered its biggest percentage decline since
before the Nov. 8 U.S. presidential election, though the loss
was slight compared with gains of the last month or so.
The Dow ended Wednesday down 0.6 percent, while the
S&P 500 lost 0.81 percent and the Nasdaq 0.5
Stocks have been on a tear in recent weeks on speculation
the incoming Trump Administration will pursue tax cuts and
increase infrastructure spending.
Oil prices stabilised as a tighter market looms in 2017 due
to planned output cuts led by OPEC and Russia, after sharp
declines earlier following the Fed's action.
Brent crude futures traded at $53.89 per barrel,
erasing gains made earlier in the week that had taken it a 1
Gold dropped to its lowest in more than 10 months around
$1,135.1 an ounce and last stood at $1,141.9.
(Reporting by Wayne Cole and Hideyuki Sano; Editing by Eric
Meijer & Shri Navaratnam)