* Dollar hits 8-month highs after Fed ups discount rate
* Global stocks fall 0.8 pct; copper pressured
* Policy risk in focus after Fed, China moves
By Ian Chua
LONDON, Feb 19 (Reuters) - The U.S. dollar rose and global
stocks and commodity prices fell on Friday after the Federal
Reserve caught investors on the hop with a rise in its emergency
lending rate.
While the move had been flagged, it came much sooner than
expected and was seen by markets as taking the central bank a
step closer to lifting benchmark interest rates.
Fed officials sought to play down that view, however, saying
borrowing costs in the economy would stay low. []
Cheap cash has fired up stocks and commodities over the last
year, so as governments and central banks around the world start
to withdraw that stimulus, markets are set to turn more
volatile.
China has already delivered two increases in banks' reserve
requirements this year.
European stocks <> fell 0.2 percent with Germany's DAX
<> down 0.1 percent, having earlier fallen as much as 0.9
percent.
The MSCI world equity index <.MIWD00000PUS> dropped 0.8
percent, retreating from a two-week peak hit on Thursday. U.S.
stock index futures <SPc1><NDc1><DJc1> were all down between 0.6
and 0.8 percent.
Emerging stocks <.MSCIEF> fell 1.3 percent while Asian
equities excluding Japan <.MIAPJ0000PUS> slid 1.7 percent.
Japan's Nikkei stock average <> closed 2.1 percent lower.
"The markets have not taken too kindly to the (Fed raising
its discount rate) with drops in the Nikkei <> and the Hang
Seng <> ... this is now going to wash over Europe," said
Justin Urquhart Stewart, director at Seven Investment
Management.
"The repo rate going up has brought about a change in tide
of the cost of money."
DOLLAR SHINES
In the currency market, investors added to growing bets on
the U.S. dollar and slashed bets on others, especially
currencies of countries with poorer growth prospects.
The U.S. dollar index <.DXY>, a gauge of its performance
against six major currencies, jumped more than 1 percent to its
highest in eight months at 81.342 following the Fed move, which
was announced after Wall Street had closed on Thursday.
"This will force people to take note that the Fed does
appear to be shuffling ever closer to that exit door," said
Gareth Berry, a currency strategist at UBS in Singapore.
"My feeling is that the dollar has crossed a line this
morning and from here it will probably strengthen gradually."
The euro <EUR=> fell to its lowest in nine months at around
$1.3442, though it trimmed losses after St. Louis Federal
Reserve President James Bullard said market expectations for a
policy rate hike this year were "overblown." []
Sterling also fell to a 9-month low against the dollar at
$1.5369. It was last down 1.5 percent on the day at $1.5391.
Shorter-term U.S. bond yields were supportive of the dollar.
The yield on the 2-year U.S. Treasury note <US2YT=RR>, which is
sensitive to policy rates, rose to a 1-month high of 0.9724
percent before settling back to 0.9399 percent.
The euro zone's benchmark two-year Schatz yield <EU2YT=RR>
hit a one-week high of 1.049 percent, bouncing off a euro
lifetime low of 0.958 percent plumbed in the previous session.
U.S. crude oil futures <CLc1> fell 1.3 percent to $78.07 a
barrel <CLc1>, hurt by dollar strength that rocked commodities
across the board.
Spot gold <XAU=> was down 0.4 percent at $1,106 an ounce
<XAU=> and has declined more than 6 percent since December,
while copper <MCU3=LX> fell 1.6 percent to $7,176.50 a tonne.
(Additional reporting by Joanne Frearson in London, Kaori
Kaneko in Tokyo and Kevin Plumberg in Hong Kong; Editing by Toby
Chopra)
