Bonds News

FOREX-Dollar near 14-year peak after Fed increases rate hike projections

* Dollar boosted after Fed ups 2017 rate hike projections

* Dollar/yen hits 10-mth high, euro/dollar stoops to 21-mth low

* Focus on if further rise in USD prompts warning by authorities

TOKYO, Dec 15 (Reuters) - The dollar hovered near a 14-year peak against a basket of major currencies on Thursday, receiving a major boost after the Federal Reserve increased the number of projected interest rate hikes for 2017.

In a closely watched decision on late Wednesday, the U.S. central bank raised the target federal funds rate by 25 basis points to between 0.50 percent and 0.75 percent.

The rate hike was fully expected by the financial markets and the real mover came from the Fed signalling three hikes in 2017, up from around two flagged at its September policy meeting.

The dollar index stood at 102.17 after rising to 102.350 late on Wednesday, its highest since January 2003. The euro was down 0.2 percent at $1.0513 after sliding overnight to $1.0497, a trough not seen in 21 months.

The greenback surged more than 1.5 percent overnight to a 10-month high of 117.400 yen and was last at 117.190.

The dollar’s push above 117 yen came after Fed Chair Janet Yellen said that the rate increase was a “very modest adjustment in the path of the fed funds rate.” This was seen by investors as an endorsement of the Fed signalling a faster pace of rate increases in 2017.

“The rate hike projections for 2017 being increased to three shows that Fed’s board is having to factor in the impact of Trump’s policies,” said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo.

The Fed’s policy decision came as U.S. president-elect Donald Trump’s administration takes over with promises to boost growth through tax cuts, spending and deregulation.

“The focus now falls on U.S. equities and whether they can withstand the surging dollar and Treasury yields. If not, we could see the Trump camp warn against the appreciation of the dollar,” Ishikawa said.

Following the Fed’s move, the 10-year Treasury note yield vaulted to its highest level since September 2014, coming close to 2.6 percent, while Wall Street shares fell the most in two months.

Treasury yields, a key driver of the dollar’s recent surge, have been climbing relentlessly since November on prospects of Trump administering reflationary policies through massive fiscal spending.

The Australian dollar was down 0.1 percent at $0.7400 , adding to losses of 1.2 percent suffered the previous day.

Sterling was down 0.3 percent at $1.2524 after hitting a two-week low of $1.2515.

Editing by Sam Holmes