The U.S. Federal Reserve on Thursday made its first interest rate move since December 2008, hiking an emergency lending rate it charges banks, but insisted borrowing costs would not rise for consumers or companies.

The Fed cast its decision to raise the discount rate to 0.75 percent from 0.5 percent as a response to improved financial market conditions that warrant less of a helping hand from the U.S. central bank.

It went to pains to draw a distinction between the discount rate and the federal funds interbank lending rate, its main monetary policy tool, which remains unchanged near zero percent to help sustain a fragile U.S. economic recovery.

Like the closure of a number of extraordinary credit programs earlier this month, these changes are intended as a further normalization of the Federal Reserve's lending facilities, the Fed said in a statement.

The modifications are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy or for monetary policy, it said.

Fed officials fanned out across the country to emphasize that point.

Monetary policy -- as evidenced by the fed funds rate target -- remains accommodative, Atlanta Federal Reserve bank President Dennis Lockhart said in Augusta, Georgia. Fed Governor Elizabeth Duke echoed the Fed's message in a speech in Norfolk, Virginia.

The decision, requested by all 12 regional Fed banks and approved unanimously by the central bank's board in Washington, takes effect on Friday.

SHOT ACROSS THE BOW?

Despite the Fed's effort to distinguish its programs to foster market liquidity from monetary policy, financial markets viewed the announcement as presaging an eventual policy shift.

U.S. stock futures dropped sharply and government bond prices fell after the announcement, with the yield on policy-sensitive two-year notes touching their highest level since late January. The U.S. dollar also rose, hitting a nine-month high against he euro and a one-month high against the yen.

Interest rate futures markets moved to price in about a 70 percent chance of a hike in the Fed's main policy rate, the federal funds rate, by late September, up from 54 percent.

Although Fed Chairman Ben Bernanke said last week the central bank could soon raise the discount rate it charges on short-term loans to banks, the timing came as a surprise. The Fed usually moves the emergency loan rate in tandem with the overnight federal funds rate.

The Fed can talk all day about how the discount rate hike is technical and not a policy move, but the market sees it as a shot across the bow, said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York.

However, St. Louis Federal Reserve Bank President James Bullard disputed that interpretation, saying it is warranted now that financial markets are stabilizing.

It does not indicate anything one way or the other about what we might eventually do with the federal funds rate, he told reporters after a speech in Memphis, Tennessee.

Bullard further said market expectations that the Fed would hike rates this year are overblown and that rate increases in 2011 are much more likely.

ECONOMIC OUTLOOK UNCHANGED

The central bank's view of the economy has brightened in recent months as job losses eased, consumer spending strengthened and businesses stepped up purchases of equipment and software.

Still, the Fed has cautioned that recovery from the deepest U.S. recession since the 1930s will probably be sluggish and has said it expects to keep the federal funds rate near zero, where it has been since December 2008, for an extended period.

In its statement on Thursday, it said the economic and policy outlook remained about the same as in late-January, when its policy committee reiterated that low-rate pledge.

Some other central banks around the world have begun to tighten policy. Australia led the way last year and its central bank chief signaled on Friday more rate increases in months ahead while China took several steps to curb bank lending.

In the United States, however, the Fed has said extraordinarily low interest rates are still warranted with the unemployment rate near 10.0 percent and much of the nation's industrial capacity still lying untapped.

U.S. President Barack Obama, facing the prospect that his Democratic party will lose congressional seats in November elections, has said job creation is his top priority.

Before the financial crisis erupted in 2007, the discount rate was typically a full percentage point above the federal funds rate. The Fed's decision on Thursday begins to move it back nearer its traditional premium.

(Additional reporting by Jennifer Ablan and Daniel Burns in New York, Mark Felsenthal in Memphis, Tennessee, Pedro da Costa in Augusta, Georgia; Writing by Emily Kaiser, Tim Ahmann and Mark Felsenthal; Editing by Andrea Ricci and Leslie Adler)