GLOBAL MARKETS-Lira, rand back on the rack as Fed keeps markets on edge

* Stocks, lira, rand falter as Turkey rate hike relief evaporates

* South African hike fails arrest rand slide

* Markets will face test as Fed is expected to trim bond buys

* Safe-haven assets, commodities regain ground, Wall Street starts lower

By Marc Jones

LONDON, Jan 29 (Reuters) - Turkey's lira and other emerging market currencies were back under pressure on Wednesday as expectations the Federal Reserve will press on with stimulus cuts later in the day reheated doubts over developing markets' appeal for investors.

The Turkish central bank's massive 425 basis point interest rate hike overnight had stirred hopes of breaking the vicious cycle of selling in emerging markets and reviving risk appetite.

But the cracks were quick to reappear in another turbulent session in Europe. The lira gave back all of an earlier 3 percent surge, stocks in Istanbul slumped and South Africa's rand dropped despite a rate hike by its central bank.

"Certainly a bit of shock and awe on the rate hike but you do have to wonder, if this doesn't work in arresting the decline in the lira, what other measures the Turkish central bank has?" said Michael Hewson senior analyst at CMC Markets.

"Do you jack up rates again? ... My big concern is they start talking about capital controls."

With markets once again in a volatile state and the U.S. Federal Reserve expected to press on with cutting back its huge stimulus later in the day, it looked to be a hectic few hours ahead for traders.

Recently polled analysts had not expect South Africa to move rates, but Turkey's massive hike which had come after an Indian rate increase on Tuesday, left it with little option if wanted to protect its currency from further trauma.

European shares had initially ridden the wave of optimism that spilled in from Asia, but Britain's FTSE 100, Germany's DAX and France's CAC 40 were all in deep negative territory as U.S. trading began.

Wall Street opened down too, with the main S&P 500 and Dow Jones indexes both off 0.8 percent, with the jitters surrounding emerging markets teeing traders up for a nervy run in to the 1900 GMT Fed policy announcement.

The U.S. central bank is widely expected to trim its asset-buying programme by another $10 billion a month, after the conclusion of its two-day policy meeting.

This 'tapering' process has been a major factor in the recent emerging market sell-off, because much of the Fed's largesse has flowed to the higher-yielding assets to be found in these markets.

"It's going to be a long year for the 'fragile five'" said Jose Wynne, managing director of research at Barclay's referring Turkey, Indonesia, South Africa, Brazil and India, adding however that Turkey's hike had been a sensible move.

EMERGING CONCERNS

South Africa's rate rise took rates to 5.5 percent from 5 percent while Turkey's move had been a far larger than expected 425 basis points increase and took its main lending rate all the way to 12 percent.

But hopes of stemming the rout in the lira and other key emerging currencies failed to hold as the lira slumped from 2.1650 per dollar to 2.2583 leaving it back in range of Monday's historic low of 2.39.

And with markets taking the view that South Africa's rate hike was insufficient, the rand was down more than 2 percent after the rate decision at 11.2500 per dollar.

The dollar meanwhile was largely biding its time ahead of the meeting but with EM jitters bubbling again, traditional safe havens such as the yen, U.S. and German government bond and gold were all back in demand..

"The Fed has claimed numerous times that they are setting monetary policy based only on the U.S. economy, so volatility elsewhere is not going to sway their decision for now," said Luke Bartholomew, fixed income strategist at Aberdeen Asset Management in London.

Currencies from Malaysia to Australia and Indonesia to India all weakened after making headway in Asian trading.

With so many stocks tumbling, MSCI (NYSE: MSCI - news) 's emerging equity index saw its day's rise cut to a token 0.2 percent and the all-world index, which has had over a trillion dollars wipe off its value over the last week, was at a five-week low.

The drive for safer assets saw U.S. 10-year Treasury yields fall to 2.715 percent ahead of the 1900 GMT Fed decision.

Among commodities, Brent oil edged up toward $108 a barrel ahead of U.S. inventory data due later in the day. Safe haven gold meanwhile headed back up to $1,264.10 an ounce, not too far short of Monday's high of $1,278.01.