* 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
* Futures up: Dow 81 pts, S&P 8 pts, Nasdaq 17.75 pts (Adds details, link to graphics, comment, updates prices)
By Tanya Agrawal
Dec 16 (Reuters) - U.S. stock index futures were higher on Wednesday ahead of a widely expected hike in interest rates 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 there is a chance that accompanying the interest rate hike is going to be some very dovish commentary with regard to ‘Yes, we want to move off zero, but we’re not going to expedite the tightening cycle’,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia.
“That is bringing some certainty into the market and I think investors welcome that.”
Dow e-minis were up 81 points, or 0.46 percent, with 26,067 contracts changing hands at 7:26 a.m. ET. S&P 500 e-minis were up 8 points, or 0.39 percent, with 175,061 contracts traded. Nasdaq 100 e-minis were up 17.75 points, or 0.39 percent, on volume of 24,357 contracts.
Higher interest rates make loans more expensive, crimping profit margins. Banks, however, will benefit from a rise in rates.
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 briefly breaching its dotcom boom highs.
The Fed has said it would raise rates when it sees 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.
U.S. stocks rose broadly on Tuesday, helped by a rally in the financials and energy sectors, but ended far off their session highs.
“We expect the start of policy normalization to serve as a catalyst for normalization of the investment environment,” Mike O‘Rourke, chief market strategist at Jones Trading, said in a note, adding that the prolonged period of extremely accommodative monetary policy has distorted investment objectives.
Dow component Disney shares were up 1.9 percent at $114.30 in premarket trading as the newest installment of “Star Wars” hit screens worldwide.
Honeywell was up 3 percent at $101.47 after the company reaffirmed its full-year outlook.
Reporting by Tanya Agrawal and Abhiram Nandakumar; Editing by Anil D'Silva