UPDATE 1-Lockhart: Fed discount rate hike not a tightening

(Adds detail, comment)

By Pedro Nicolaci da Costa

AUGUSTA, Ga. Feb 18 (Reuters) - The Federal Reserve's decision to raise the discount rate it charges to banks for emergency loans should not be seen as a tightening of monetary policy, or a signal that such a move is forthcoming, a top Fed official said on Thursday.

Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, said he expects a slow economic recovery with weak employment growth, which would warrant keeping borrowing costs low for some time.

He worries that problems in the commercial real estate sector could derail some of the progress made in restoring the functioning of credit markets.

"Monetary policy -- as evidenced by the fed funds rate target -- remains accommodative," Lockhart told the Augusta Metro Chamber of Commerce. "This stance is necessary to support a recovery that is in an early stage and, in my view, still fragile."

The Fed on Thursday raised the discount rate by a quarter percentage point to 0.75 percent, a response to what it sees as improved financial market conditions. The central bank's main policy tool, the federal funds rate, remained in a zero to 0.25 percent range.

"I would not interpret this action as a tightening of monetary policy or even a sign that a tightening is imminent," said Lockhart.

It was unclear that investors would take the central bank at its word.

"The Fed is billing this not as a monetary policy change to its main target rate, but the market obviously will take this as a bearish sign that the Fed is going to start to tighten," said Michael Pond, a bond market strategist at Barclays Capital in New York.

While Lockhart appeared relatively pessimistic about the economy's prospects, he said the central bank should be "nimble" in its ability to react to unexpectedly strong economic growth.

Still, he indicated such a rosy scenario is unlikely.

"I expect a very slow recovery of employment markets and, therefore, a slow decline of the unemployment rate," Lockhart said. (Editing by Leslie Adler)