* Fed keeps rates steady, to start portfolio drawdown in October
* Fed statement suggests it still anticipates Dec rate hike
* Treasury yields jump to highest in 6 weeks
* Wall St falls after Fed signals another rate hike this year (Updates to after Fed statement)
By Caroline Valetkevitch
NEW YORK, Sept 20 (Reuters) - U.S. Treasury yields rose, the dollar gained while U.S. stocks fell on Wednesday after the U.S. Federal Reserve signaled it expects one more interest rake hike by the end of the year.
In its statement, the Fed, as expected, left rates unchanged and also said it would begin in October to reduce its approximately $4.2 trillion in holdings of U.S. Treasury bonds and mortgage-backed securities. U.S. Treasury yields jumped to their highest levels in six weeks. Benchmark 10-year notes US10YT=RR fell 11/32 in price to yield 2.29 percent, up from 2.24 percent before the Fed's statement and the highest level since Aug. 8. reaction in the Treasury market "suggests a lot of people maybe weren't anticipating the Fed would stick with the third rate hike expectation this year. So there's a little adjustment going on there," said David Joy, chief market strategist at Ameriprise Financial (NYSE:AMP) in Boston.
Interest rate futures traders are now pricing in a 72-percent chance of a December rate hike, up from roughly 60 percent before the statement, according to the CME Group's (NASDAQ:CME) FedWatch Tool.
Financial shares added to gains following the statement while utilities declined. Dow Jones Industrial Average .DJI rose 7.97 points, or 0.04 percent, to 22,378.77, the S&P 500 .SPX lost 2.64 points, or 0.11 percent, to 2,504.01 and the Nasdaq Composite .IXIC dropped 21.76 points, or 0.34 percent, to 6,439.57.lost 0.09
The pan-European FTSEurofirst 300 index .FTEU3 lost 0.18 percent. MSCI's gauge of stocks across the globe .MIWD00000PUS shed 0.25 percent.
The dollar index .DXY rose 0.75 percent, with the euro EUR= down 0.83 percent to $1.1892. had been mostly flat ahead of the Fed statement, while the dollar had been trading slightly lower.
Earlier, the New Zealand dollar hit its strongest in more than a month at $0.7374 NZD= after a poll showed the ruling National Party regaining a wide lead over the opposition before Saturday's election. prices were higher. They earlier pared gains after data showed a bigger-than-expected build in U.S. crude inventories. crude CLcv1 rose 1.5 percent to $50.65 per barrel and Brent LCOcv1 was last at $55.86, up 1.75 percent on the day.
For Reuters 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
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