GLOBAL MARKETS-Stocks, dollar gain as views change on rate hike

                                
 * Surprise Fed rate hike unsettles, then cheers markets
                                
 * Dollar climbs as higher rates benefit dollar assets
                                
 * Stocks gain on view rate hike sign of economic recovery
                                
 * Bonds edge higher on soothing Fed comments, benign CPI
 (Adds close of U.S. markets)
                                
 By Herbert Lash and Al Yoon
                                
 NEW YORK, Feb 19 (Reuters) - The dollar gained broadly and
stocks edged higher worldwide on Friday after investors swept
aside negative views of a surprise move by the U.S. Federal
Reserve to hike an emergency lending rate and took it as a sign
of a healing economy.
                                
 Stocks on Wall Street closed out their best week of the
year after a zig-zag session as investors weighed the Federal
Reserve decision late Thursday to raise its discount rate for
banks by one-quarter percentage point to 0.75 percent. For
details see: [ID:nN19153420]
                                
 U.S. Treasuries rebounded, too, from early losses as bond
investors took comfort in comments by Fed officials who said
the rate hike did not herald a shift in monetary policy and
that borrowing costs would remain low. [ID:nN18218950]
                                
 Investors also were encouraged after the government
reported U.S. inflation rose less than expected in January.
                                
 Currency traders, however, read the rate decision as a
signal that the U.S. central bank was coming closer to the day
it tighten its benchmark rate. The U.S. dollar rallied, as
higher rates increase the return on dollar-denominated assets.
                                
 "The markets are taking this as a clear step towards
normalization in monetary policy," said Meg Browne, a currency
strategist at Brown Brothers Harriman in New York. "If you
combine the Fed actions with the fundamentals of the U.S.
economy and contrast it with the situation in Europe, dollar
buying is more than justified."
                                
 The euro <EUR=> traded as low as $1.3444, according to
Reuters data, its lowest level in nine months. It was down 0.05
percent at $1.3607.
                                
 U.S. stocks closed higher after a see-saw session in which
investors worried the eventual withdrawal of easy money will
hurt Wall Street. [ID:nN19241573]
                                
 "Investors know the Fed is marching toward a hike. The
question is, Is it a long or a short march?" said Quincy
Crosby, market strategist at Prudential Financial in Newark,
New Jersey.
                                
 The KBW bank index <.BKX> rose 1.2 percent on sentiment
that the Fed move indicates improved financial conditions that
warrant less of a helping hand from the U.S. central bank.
                                
 Charles Lieberman, chief investment officer of Advisors
Capital Management in Paramus, New Jersey, said the Fed action
"would suggest a recovering economy, and a financial system
that can withstand higher interest rates."
                                
 The Dow Jones industrial average <.DJI> closed up 9.45
points, or 0.09 percent, at 10,402.35. The Standard & Poor's
500 Index <.SPX> was up 2.42 points, or 0.22 percent, at
1,109.17. The Nasdaq Composite Index <.IXIC> was up 2.16
points, or 0.10 percent, at 2,243.87.
                                
 The MSCI world equity index <.MIWD00000PUS> declined 0.48
percent, cutting session losses by half, after hitting a
two-week peak hit on Thursday.
                                
 The dollar climbed across the board, rising against a
basket of major currencies. The U.S. Dollar Index <.DXY> was up
0.21 percent at 80.569, after earlier touching an eight-month
high. [ID:nN19120591].
                                
 Against the yen, the dollar <JPY=> was up 0.43 percent at
91.61.
                                
 Oil prices rose toward $80 a barrel, as French refinery
strikes and tensions about Iran's nuclear program outweighed
fears that U.S. monetary tightening could slow demand growth in
the United States, the world's largest oil consumer.
                                
 U.S. crude for March delivery <CLc1> rose 75 cents to
settle at $79.81, marking a 7.7 percent rise for the week, the
highest one-week gain for front-month crude since October.
                                
 In London, ICE Brent crude for April <LCOc1> rose 41 cents
to $78.19 a barrel.
                                
 Gold prices reversed early losses, fueled by the stronger
dollar as investors bought the metal to hedge against currency
volatility and debt default risks in Europe. [ID:nLDE61I0XU]
                                
 U.S. gold futures for April delivery <GCJ0> ended $3.40
higher at $1,122.10 an ounce.
                                
 U.S. Treasury debt prices were higher. The benchmark
10-year U.S. Treasury note <US10YT=RR> was up 7/32 in price to
yield 3.78 percent.
 (Reporting by Rodrigo Campos, Nick Olivari, Emily Flitter,
Edward McAllister and Alonso Soto in New York; William James
and Jan Harvey in London; Writing by Herbert Lash and Al Yoon;
Editing by Leslie Adler)