* Fed raises rates as expected, "dot plots" surprise on upside
* Wall St slips, most Asia stocks follow
* Dollar hits 14-yr high on currency basket, 10-mth peak on yen
* European shares seen slightly weaker
* Oil stabilises after paring this week's gains
By Marc Jones
LONDON, Dec 15 (Reuters) - The dollar charged to an almost 14-year high and government bond yields rose sharply on Thursday, after the Federal Reserve hiked U.S. interest rates and signalled more would follow at a faster pace next year.
European shares got off to a solid start with banks up almost 2 percent, cheered by the prospect of a boost from higher rates to their lending profits, but the main action was elsewhere.
Bond markets saw yields on short-term U.S. debt surge to the highest since 2009, sending the dollar to peaks last seen in early 2003, 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 get growth motoring, are keeping emerging markets on edge as capital gets sucked from more fragile, export-dependent economies toward dollar-based assets.
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.
"You had the Fed come in and be a bit more hawkish that many people, including us, were expecting," said TD Securities head of global strategy Richard Kelly.
"It wasn't just the move in the dots, it was the language that was used. There was an acknowledgement that if Trump gets his plans moving through congress you could see the economy pushing higher."
The change in tone 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.
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.
The dollar was still moving up in European trading. It hit a 10-month high against the Japanese yen of 117.87 yen while the difference in yields on 10-year U.S. government bonds compared and German ones ballooned to the widest since at least 1990.
U.S. Treasuries yields rose as far as 2.61 percent , having already risen more than 0.7 percentage point since Trump was elected last month. The jump in 2-year Treasury paper was the biggest daily rise since early 2015.
"One of the reasons why a bond market sell-off this time around looks more sustainable is because it can be accompanied by higher equity markets," Peter Schaffrik, chief European macro strategist at RBC Capital Markets said. ****************************************************************
For Reuters Graphic on the Fed, click on
The allure of higher U.S. yields raises risks for emerging markets, as funds look to take advantage of rising U.S. rates rather than put their money in traditionally riskier economies.
China's central bank reacted to the Fed's move by setting 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.
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 yields and weaker yuan.
Mexico, whose markets and currency have been battered hardest by Trump's threats to tear up trade deals, holds a central bank meeting later where it is expected to hike its own interest rates in response to the Fed.
The Bank of Korea gave a taste of the challenges many EM economies face. It held its key rate at a record low of 1.25 percent despite flagging the growing risks on its export-reliant economy.
Majors are at the dollar's mercy too. 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 2002.
Wall Street suffered its biggest percentage decline since before the Nov. 8 U.S. election on Wednesday, though the loss was slight compared with the strong gains of the last month.
Among commodities, 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 up a shade at $54.33 per barrel, having lost some of the ground overnight made earlier in the week that had taken it a 1 1/2-year high.
Gold dropped to its lowest in more than 10 months around $1,135.1 an ounce and last stood at $1,138.
"The outlook for gold is not particularly great," said ANZ analyst Daniel Hynes. "The more hawkish comments from the Fed are clearly a headwind in the short-term... The selling seen this morning is just the start of things to come."
For Reuters new Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
Additional reporting by Wayne Cole and Hideyuki Sano