US RATE FUTURES-Chance for Fed hikes up on price fears

CHICAGO, May 22 (Reuters) - Short-term interest rate futures tumbled on Thursday on worries about rising inflation, sharply driving up the implied chance for the Federal Reserve to raise benchmark interest rates as early as October.

Prospects for an October hike in the federal funds rate to 2.25 percent from the current 2 percent hit 70 percent against Wednesday's closing level of 34 percent.

By year-end futures now fully price a funds rate of 2.25 percent and see a one-in-four chance the Fed will have raised rates to 2.5 percent.

Pressure on futures was noted from surging energy prices and rising market-based inflation expectations that are likely to alarm Fed policy-makers. (Editing by James Dalgleish)