* Fed hikes interest rates by quarter point to 2.25 pct
* Shanghai shares hit 8-week high, helped by MSCI news
* Brent crude prices ease off 4-year high but still above $80
* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh (Adds Wall Street close, Canadian dollar, yield curve flattening; updates throughout)
By Hilary Russ
NEW YORK, Sept 26 (Reuters) - A rally in U.S. equities fizzled out late on Wednesday, while the U.S. dollar rose, after the Federal Reserve raised interest rates, as expected, and flagged the end of its “accommodative” monetary policy.
With steady economic growth and a strong job market, the Fed indicated that it still foresees another rate rise in December, three more next year, and one in 2020.
Though the U.S. dollar was higher, it had briefly stumbled after the Fed decision.
“The strong dollar has been torpedoing everyone’s international investments for the better part of a year or so,” said Jamie Cox, Managing Partner at Harris Financial Group in Richmond, Virginia.
“If the dollar tails off here or just levels off, that is very bullish for emerging markets and other places where that dollar strength has really been a problem.”
The Dow Jones Industrial Average fell 106.93 points, or 0.4 percent, to 26,385.28, the S&P 500 lost 9.59 points, or 0.33 percent, to 2,905.97 and the Nasdaq Composite dropped 17.11 points, or 0.21 percent, to 7,990.37.
The higher greenback also dented the Canadian dollar, which hit its lowest level in more than a week. Concerns that Canada would be left out of a trade deal with its NAFTA counterparts also weighed.
U.S. Treasury yields fell, with the yield curve now at its flattest levels in over a week. Longer-dated yields led the bond market in the wake of Fed Chairman Jerome Powell’s inflation comment.
“His statements on the economy at the press conference was pretty bullish,” said Dec Mullarkey, managing director of investment strategies at Sun Life Investment Management in Wellesley, Massachusetts. “On the inflation front, he saw things as pretty contained.”
Benchmark 10-year notes last rose 14/32 in price to yield 3.0499 percent, from 3.102 percent late on Tuesday.
Earlier in the day, Chinese equity markets had set a positive tone after global index provider MSCI said it could quadruple China’s weighting in global benchmarks. That lent fresh impetus to a market already buoyed by expectations of state stimulus to offset the impact of U.S. tariffs.
Shanghai-listed shares closed almost 1.0 percent higher at eight-week highs and the Hang Seng Index, made up of large Hong Kong companies, rose 1.15 percent.
The pan-European FTSEurofirst 300 index rose 0.27 percent and MSCI’s gauge of stocks across the globe shed 0.15 percent.
The dollar index rose 0.15 percent, with the euro down 0.25 percent to $1.1741. The Japanese yen strengthened 0.25 percent versus the greenback at 112.74 per dollar.
Oil prices eased off four-year highs above $82 hit on Tuesday but were still set for a fifth consecutive monthly quarter of gains, driven by a looming drop in Iranian exports in the last quarter of the year when global demand heats up.
U.S. crude fell 0.43 percent to $71.97 per barrel and Brent was last at $81.10, down 0.2 percent on the day.
Additional reporting by Fergal Smith in Toronto; Lewis Krauskopf, Caroline Valetkevitch, Richard Leong and Gertrude Chavez-Dreyfuss in New York; Editing by Chizu Nomiyama