* U.S. Treasury yields rise as Fed raises rates
* S&P 500 closes down 0.4 percent
* Fed indicates two more hikes in 2018
* Crude oil settles higher amid lower-than-expected inventories (Adds U.S. stocks close)
By Nick Brown
NEW YORK, June 13 (Reuters) - U.S. Treasury yields jumped and Wall Street reversed earlier gains to close lower on Wednesday, after the Federal Reserve raised interest rates and signaled that two more hikes could be coming this year.
Ten-year U.S. Treasury note yields hit a one-week high, while two-year note yields rose to a three-week peak after the Fed's decision to raise its benchmark overnight lending rate a quarter of a percentage point, to a range between 1.75 percent and 2 percent.
Policymakers also projected a slightly faster pace of rate increases in the coming months, with two additional hikes expected by the end of this year, compared to one previously.
Benchmark 10-year U.S. Treasury notes last fell 6/32 in price to yield 2.9774 percent, from 2.957 percent late on Tuesday.
The 30-year bond last fell 3/32 in price to yield 3.0967 percent, from 3.092 percent Tuesday.
The dollar index, which measures the greenback against a basket of currencies, fell 0.24 percent, with the euro up 0.41 percent to $1.1791.
"There was some question about the December rate hike and it looks like the Fed is sticking to that plan and I would say this is a very mild negative for risk markets," said Matthew Forester, chief investment officer at Lockwood Advisors Inc in King of Prussia, Pennsylvania.
"Each rate hike becomes more difficult for the risk markets and the real economy to digest."
The Dow Jones Industrial Average fell 119.53 points, or 0.47 percent, to 25,201.2, the S&P 500 lost 11.22 points, or 0.40 percent, to 2,775.63 and the Nasdaq Composite dropped 8.10 points, or 0.11 percent, to 7,695.70.
The losses came on a day Wall Street had opened slightly in the black, after a court approved AT&T's $85-billion takeover of Time Warner after the closing bell on Tuesday.
Time Warner shares jumped 1.73 percent after approval of the AT&T deal, which is expected to trigger other corporate takeovers, and AT&T dropped 2.13 percent.
Focus now turns to policy meetings later this week at the European Central Bank and the Bank of Japan.
"The Fed isn't the biggest player here," said Stephen Massocca, senior vice president at Wedbush Securities in San Francisco. "If the ECB or the Bank of Japan begin tightening it'll have a bigger impact than the Fed."
Trade tensions are also weighing on markets, as the U.S. prepares to unveil more tariffs on $50 billion worth of Chinese goods.
The pan-European FTSEurofirst 300 index rose 0.09 percent and MSCI's gauge of stocks across the globe shed 0.26 percent.
Emerging market stocks lost 0.61 percent.
Trade tensions were pressuring the Mexican peso and Canadian dollar, which bounced back and forth against the U.S. dollar, last gaining 0.18 percent and 0.22 percent, respectively, versus the greenback.
Oil prices, which had started the day in the red, settled higher after a report by the Energy Information Administration indicated U.S. crude inventories fell more than anticipated last week and gasoline and distillate stocks surprised with declines.
U.S. crude settled up 0.42 percent, at $66.64 per barrel, while Brent gained 1.13 percent on the day, settling at $76.74.
"The demand metrics here are amazing for crude oil and gasoline," said John Kilduff, a partner at Again Capital in New York. "Put the exports of crude on top of that, and it's just a really bullish report."
Italian government bonds were in demand, as well, after Paolo Savona, the country's new EU Affairs Minister, said the euro was "indispensable."
The comments by Savona, who has previously expressed hostile views on the euro, followed statements earlier in the week by Italy's new coalition government that it had no plans to leave the euro zone.
In another reminder of the danger of trade disputes, shares in Chinese telecommunications giant ZTE Corp fell as much as 41.5 percent, wiping $3 billion off its market value, as it resumed trade after agreeing to pay up to $1.4 billion in penalties to the U.S. government.
Additional reporting by Gertrude Chavez-Dreyfuss, Jessica Resnick-Ault, Sruthi Shankar, Howard Schneider and Jason Lange Editing by Nick Zieminski and Chris Reese