* Dollar and previous "liftoffs" reut.rs/1PuuPZI
* Who's right on rates: Fed or market?
* Emerging markets, junk bonds exposed
By Jamie McGeever
LONDON, Dec 17 (Reuters) - The reaction across global markets to Wednesday's historic rise in U.S. interest rates appears to have been smooth and pain-free. But scratch below the surface and there is a puzzling disconnect, at the heart of which lies the dollar.
The U.S. currency climbed 1 percent on Thursday, its biggest rise in over a month and a trajectory which, if it continues, has serious implications for already highly stressed emerging markets, commodities and high-yield bonds.
A dollar rise was by no means a foregone conclusion, not least because long-dated U.S. Treasury yields fell and history showed that the currency weakened once the Federal Reserve began its last three policy tightening cycles in 1994, 1999 and 2004.
If that appreciation continues into 2016, questions will be raised over the durability of what has so far been a post-Fed 'relief rally' in emerging equities, high-yield bonds, oil and metals prices. It could also have a detrimental impact on U.S. exporters and domestic economic growth.
If the fate of China's yuan, the stability of highly leveraged oil and mining companies and financial stress in crude-exporting economies are some of the big risks to world markets next year, then a resumption of dollar strength will only amplify those pressures.
Yet not only have U.S. and developed market stocks and bonds risen since the Fed move. So too have emerging market stocks and high yield bonds, which are all vulnerable to rising U.S. interest rates, a stronger dollar and weaker commodity prices.
"Disconnects do happen," said Ashraf Laidi, CEO at Intermarket Strategy in London. "But we need to be skeptical about a market reaction to a point of view that is made 12 months out, especially given the track record and consistency of the Fed over the last four or five years to revise down their fed funds forecasts."
The issue for many investors then is whether this puzzle is solved by either a retreat of the dollar or fresh turbulence in those other asset markets.
"The key question is whether the U.S. economy is finally robust enough not only to sustain its own recovery but also to lift world trade and global growth enough to allow the external deflationary pressures weighing on U.S. inflation to wane," said Janet Henry, global chief economist at HSBC in London.
"Or whether the U.S., via a strong dollar, will simply become the latest victim of the deflationary 'pass the parcel' which has plagued the global economy for a decade and find itself following all of the other developed market central banks which raised rates but soon found they had to reverse course."
The Fed ended its post-crisis era of super-easy monetary policy on Wednesday, raising its fed funds target rate by 25 basis points exactly seven years to the day since it cut it to virtually zero. It was the first rate hike since June 2006, and one of the most widely flagged central bank moves in history.
It also maintained its so-called "dot plot" forecast that the path for growth and inflation will warrant a further 100 basis points, or four hikes of 25 basis points, of tightening next year. Yet markets continue to discount only 50 basis points.
Laidi argues that weak inflation, low commodity prices and an uncertain outlook for China and emerging markets will force the Fed to align its view with that of the market.
But if the Fed is to be taken at its word the market will be forced to price in even higher U.S. rates. The dollar, which has already strengthened 25 percent over the last two years, could rise further.
Analysts at bond fund giant PIMCO noted that the European Central Bank, Reserve Bank of Australia and Sweden's Riksbank all delivered post-crisis rate hikes only to be forced into slashing them to record lows. China has done the same too.
And right now, emerging market companies are particularly exposed to a rising U.S. dollar, having taken advantage of the Fed's post-crisis largesse to load up on trillions of dollars worth of debt.
According to JP Morgan, broad private sector non-financial credit across emerging markets is a 130 percent of gross domestic product, double what it was in 2000. Almost a third of that is in China.
Analysts at Royal Bank of Scotland note that the leverage ratio of EM corporations on an annualized basis is just over 2.5. That's double what it was in 2007 and similar to the peak across advanced economies at the time of the 2008 crash.
"We have to keep an eye on emerging markets and commodities. The correction may not be over, and some emerging countries may continue to struggle," said Kenneth Broux, senior strategist at Societe Generale in London. (Reporting by Jamie McGeever; Editing by Mark Trevelyan)