* Shanghai shares hit 8-week high, helped by MSCI news
* Fed hikes interest rates by quarter point to 2.25 pct
* Brent crude prices ease off 4-year high but still above $80
* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh (Adds Fed rate decision and settled oil prices; updates throughout)
By Hilary Russ
NEW YORK, Sept 26 (Reuters) - Wall Street extended gains on Wednesday, while the dollar dipped but then recovered, after the U.S. Federal Reserve raised interest rates, as expected, and flagged the end of “accommodative” monetary policy.
With steady economic growth and a strong job market, the Fed left its outlook for the coming years largely unchanged. It still foresees another rate hike in December, three more next year and one in 2020.
“The strong dollar has been torpedoing everyone’s international investments for the better part of a year or so,” said Jamie Cox, Managing Partner at Harris Financial Group in Richmond, Virginia. “If the dollar tails off here or just levels off, that is very bullish for emerging markets and other places where that dollar strength has really been a problem.”
The Dow Jones Industrial Average rose 42.38 points, or 0.16 percent, to 26,534.59, the S&P 500 gained 7.87 points, or 0.27 percent, to 2,923.43 and the Nasdaq Composite added 39.79 points, or 0.5 percent, to 8,047.26.
Earlier in the day, Chinese equity markets had set a positive tone after global index provider MSCI said it could quadruple China’s weighting in global benchmarks. That lent fresh impetus to a market already buoyed by expectations of state stimulus to offset the impact of U.S. tariffs.
Shanghai-listed shares closed almost 1 percent higher at eight-week highs and the Hang Seng Index, made up of large Hong Kong companies, rose 1.15 percent.
The pan-European FTSEurofirst 300 index rose 0.27 percent and MSCI’s gauge of stocks across the globe gained 0.19 percent.
The dollar index rose 0.18 percent, with the euro down 0.22 percent to $1.1745. The Japanese yen was flat versus the greenback.
Investors were also keeping close watch on bond yields in the United States and Germany. Ten-year borrowing costs in both have inched to multi-month highs, with the first interest rate rise by the European Central Bank expected in September 2019.
German bonds, where many investors have taken shelter due to uncertainty in Italian markets, could see yields rise as the Italian coalition government has signalled its budget statement due Thursday will not include a spending binge. Italian yields fell as much as 10 bps on the day.
Benchmark 10-year notes last rose 7/32 in price to yield 3.0778 percent, from 3.102 percent late on Tuesday.
Oil prices eased off four-year highs above $82 hit on Tuesday but were still set for a fifth consecutive monthly quarter of gains, driven by a looming drop in Iranian exports in the last quarter of the year when global demand heats up.
U.S. crude oil futures settled at $71.57 per barrel, down 71 cents or 0.98 percent. Brent crude futures settled at $81.34, down 53 cents or 0.65 percent.
Additional reporting by Sujata Rao, Amanda Cooper, Zandi Shabalala and Peter Hobson in London, Amy Caren Daniel in Bengaluru, Lewis Krauskopf and Gertrude Chavez-Dreyfuss in New York; Editing by Bernadette Baum and Chizu Nomiyama