SINGAPORE: Asian stocks tumbled Friday after the U.S. central bank unexpectedly raised interest rates for emergency bank loans, triggering fears that growth could slow in the world's largest economy. European markets also lost ground.

The Federal Reserve said Thursday it will bump up the so-called "discount" lending rate by one-quarter point to 0.75 percent effective Friday, part of a pullback of the extraordinary aid it provided to fight the financial crisis.

Growing investor optimism about the strength of the U.S. economy helped boost the Dow Jones industrial average by 3 percent over the past three days. But the surprise Fed announcement after Wall Street trading closed has Asian traders wondering weather the so-called "exit strategy" from a loose monetary policy could stifle U.S. consumer demand.

Growth in many Asian nations is driven in large part by demand from the U.S. and Europe for the region's cars, consumer electronics and other goods.

The Fed move, which doesn't change consumer borrowing rates, also helped boost the U.S. dollar, a sign traders may be turning away from higher-risk investments, analysts said.

"As the dollar strengthens, we see less appetite for riskier assets such as Asian stocks." said Jit Soon Lim, head of equity research for Southeast Asia for Nomura in Singapore. "We're bullish on the region's economic growth, but bearish on risk."

Markets in China and Taiwan are closed this week for the Lunar New Year holiday.

In opening European trade, Britain's FTSE 100 lost 0.2 percent while Germany's DAX and France's CAC-40 both shed 0.6 percent. Futures augured losses Friday on Wall Street with S&P futures off 10.30 points, or 0.9 percent, at 1,095.40.

Earlier in Asia, Hong Kong's Hang Seng stock index led decliners, diving 528.13, or 2.6 percent, to 19,894.02 while Japan's Nikkei 225 stock average dropped 212.11, or 2.1 percent, to 10,123.58.

South Korea's Kospi declined 27.29, or 1.7 percent, to 1,593.90. India fell 1 percent and Indonesia dropped 0.5 percent.

Singapore's stock measure retreated 0.9 percent despite an increase of the government's 2010 economic growth forecast to between 4.5 percent and 6.5 percent from 3 percent to 5 percent.

In the U.S. on Thursday, the Dow rose 83.66, or 0.8 percent, to 10,392.90 while the broader Standard & Poor's 500 index rose 7.24, or 0.7 percent, to 1,106.75. The Nasdaq composite index rose 15.42, or 0.7 percent, to 2,241.71, its fifth straight advance.

Oil prices slid below $78 a barrel in Asia after the Fed's rate hike sent the U.S. dollar higher.

Benchmark crude for March delivery was down $1.15 at $77.91 in electronic trading on the New York Mercantile Exchange. The contract added $1.73 to settle at $79.06 on Thursday.

In currencies, the dollar rose to 91.90 yen from 91.75 yen. The euro fell to $1.3472 from $1.3529.