EMERGING MARKETS-Asian currencies, stocks tumble on Fed's hawkish rate outlook

By Rajasik Mukherjee and Himanshi Akhand

Dec 19 (Reuters) - Emerging Asian stocks tumbled to multi-month lows and currencies weakened against a strong dollar on Thursday, as risk aversion prevailed after the U.S. Federal Reserve signalled a slower pace of rate cuts in the coming year.

The broader MSCI index of international emerging markets equities .MSCIEF dropped as much as 1.6% and MSCI's emerging markets currency index .MIEM00000CUS fell 0.5% to its lowest level in more than four months.

The U.S. central bank cut interest rates on Wednesday, as expected, but Chair Jerome Powell said more reductions in borrowing costs now hinged on further progress in lowering stubbornly high inflation.

The hawkish tilt from the Fed sent traders heavily dialling back on easing expectations next year and pushed the dollar near a two-year peak. FRX/

"Powell's pivot back to price stability risks has seen the markets rapidly unwind expectations on further cuts next year, pushing yields and the U.S. dollar higher and tightening financial conditions meaningfully across the globe - kryptonite for EM asset prices," said Kyle Rodda, senior financial market analyst at Capital.com.

South Korea's won KRW=KFTC, which had already been weighed down by domestic political turmoil, dropped 1% to its weakest level in 15 years.

The Indian rupee INR=IN declined past 85 to the U.S. dollar for the first time, with traders saying the central bank was likely selling dollars to support the currency.

The Malaysian ringgit MYR= retreated 0.8% and the Indonesian rupiah IDR= fell more than 1% in its seventh straight session of losses.

Bank Indonesia (BI) said the rupiah's sharp fall to a fresh four-month low was due to the impact of Fed's policy outlook, and said it would act to stabilise the currency against any excessive volatility.

The drop came despite the BI holding interest rates steady on Wednesday as it focused on supporting the rupiah.

Maybank analysts, however, cautioned that the dollar rally faces downside risks in the near term, as markets often overshoot after the Fed's validation, only to be corrected by subsequent data releases.

Regional stocks tumbled as well, with those in Jakarta .JKSE dropping as much as 2.2% to their lowest point in nearly six months.

Stocks in India .NSEI and Taiwan .TWII slipped 1% and 1.8%, respectively.

Manila equities .PSI slumped 2% to their lowest levels since late-June, as traders await the central bank's decision later in the day.

The Bangko Sentral ng Pilipinas' (BSP) is expected to cut rates by a quarter point for the third consecutive time as inflation stays under control and the economy weakens.

Among other emerging markets, Brazil's real tumbled to hit a record low as financial markets put the Brazilian government's spending plans and wide budget deficit to the test.

HIGHLIGHTS:

** BOJ keeps rates steady, hawkish board member dissents

** Hong Kong central bank cuts interest rate, tracking Fed move

** Thai c.bank will ensure baht is not too volatile, official says

(Reporting by Rajasik Mukherjee and Himanshi Akhand in Bengaluru; Editing by Sherry Jacob-Phillips)

((Rajasik.Mukherjee@thomsonreuters.com))