* Fed announcement expected at 2 p.m. ET (1900 GMT)
* Yellen speaks half an hour later
* Traders see a more than 80 pct chance of hike on Wednesday
* Disney rises as newest installment of "Star Wars" hit screens
* Indexes up: Dow 0.93 pct, S&P 0.80 pct, Nasdaq 0.81 pct (Updates to open)
By Tanya Agrawal
Dec 16 (Reuters) - Wall Street opened sharply higher on Wednesday ahead of a widely anticipated interest rate hike by the Federal Reserve later in the day.
The Fed will announce the outcome of its policy meeting at 2 p.m. ET (1900 GMT), followed by a press conference by Chair Janet Yellen at 2:30 p.m. ET.
An increase in the Fed's benchmark rate, from near zero, would be the first since June 29, 2006.
After more than a year of posturing and a couple of false starts, the U.S. central bank is seen raising rates by a token 25 basis points.
Traders see an 81.4 percent chance of a rate hike, according to the CME Group's FedWatch tool.
The Fed is expected to move gradually on subsequent rate hikes after the initial liftoff, according to a Reuters poll. That will help soothe jittery markets, which have been roiled recently by a rout in crude oil prices and a fall in the Chinese yuan.
"I think the ideal outcome today is that the Fed raises rates and they give us a lot of verbiage that says we're going to go slow," said Scott Wren, senior global equity strategist at Wells Fargo Investment Institute in St. Louis.
"Yellen is a dove and she is going to remain a dove. She has to follow through and hammer home that they're not going to be in a hurry and that's what the market wants."
At 9:34 a.m. ET, the Dow Jones industrial average was up 162.21 points, or 0.93 percent, at 17,687.12, the S&P 500 was up 16.28 points, or 0.8 percent, at 2,059.69 and the Nasdaq Composite index was up 40.54 points, or 0.81 percent, at 5,035.90.
Apple's 1.24 percent rise gave the biggest boost to the Nasdaq and the S&P 500.
Nine of the 10 major S&P sectors were higher, with the industrial index's 0.90 percent rise leading the advancers.
Higher interest rates make loans more expensive, crimping profit margins. Banks, however, will benefit.
Goldman Sachs was up 1.7 percent and gave the biggest boost to the Dow. JP Morgan, Bank of America and Citigroup were up about 1.5 percent.
The rate hike will be a highly symbolic move, coming exactly seven years to the day, since the Fed cut rates to zero as the financial crisis engulfed the world.
Since then, the U.S. stock market has staged a spectacular bull-run, with the S&P 500 index more than doubling and the Nasdaq composite index briefly breaching its dotcom boom highs.
The Fed has said it would raise rates when it saw a sustained recovery in the economy. While the unemployment rate has fallen to multi-year lows, inflation remains stuck below the Fed's 2 percent target.
"We expect the start of policy normalization to serve as a catalyst for normalization of the investment environment," said Mike O'Rourke, chief market strategist at Jones Trading.
The prolonged period of extremely accommodative monetary policy has distorted investment objectives, he said in a note.
Shares of Dow component Disney were up 1.85 percent at $114.13 as the newest installment of "Star Wars" hit screens worldwide.
Advancing issues outnumbered decliners on the NYSE by 2,084 to 567. On the Nasdaq, 1,686 issues rose and 502 fell.
The S&P 500 index showed seven new 52-week highs and two new lows, while the Nasdaq recorded 10 new highs and 19 new lows.
Reporting by Tanya Agrawal and Abhiram Nandakumar; Editing by Anil D'Silva