Dec 14 (Reuters) - Wall Street stocks dropped on Wednesday, while Treasury yields were flat and the dollar volatile, after the U.S. Federal Reserve announced that it would raise interest rates by half a percentage point but projected additional increases by the end of 2023, a rise in unemployment and a near stalling of economic growth.

"The inflation data received so far in October and November show a welcome reduction...but it will take substantially more evidence to give confidence inflation is on a sustained downward path," Fed Chair Jerome Powell said in a press conference.

The U.S. consumer price index increased 0.1% last month, 0.2 percentage point slower than economists had expected. In the 12 months through November, headline CPI climbed 7.1% - its slowest pace in about a year. U.S. import prices also fell for a fifth straight month in November. And British inflation also moderated more than anticipated in November, data on Wednesday showed.

The Dow Jones Industrial Average (.DJI) finished down 0.4%, the S&P 500 (.SPX) lost 0.6%, and the Nasdaq Composite (.IXIC) dropped 0.76%. The MSCI All World stock index (.MIWD00000PUS) fell 0.2%.

"The Fed is taking away the punchbowl just as the party was getting started," Chris Zaccarelli, chief investment officer for Independent Advisor Alliance in Charlotte, said in an email.

"Despite a lower-than-expected CPI inflation report yesterday, the Fed’s statement today signals that they are going to be even more restrictive than they had previously indicated."

While the dollar index initially jumped on the Fed news, trading was choppy and was last down nearly 0.5% on the day. The euro was up 0.44% to $1.0677, the Japanese yen strengthened 0.19% versus the greenback and Sterling was last trading at $1.2425, up 0.57% on the day.

European stocks were flat, with the continent-wide Stoxx 600 (.STOXX) down 0.02% after rising 1.3% in the previous session.

In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) rose nearly 1%, with easing Chinese COVID-19 curbs boosting sentiment.

"The expected 50 basis point hike in rates is not what is causing the sell-off in the market," Quincy Krosby, Chief Global Strategist for LPL Financial in Charlottesville, said in an email. "Rather it is dot plot expectations that the Fed will hold rates throughout 2023, and not begin rate cuts until 2024."

U.S. Treasury yields were little changed to slightly lower in choppy trading after the Fed news. The yield on benchmark 10-year U.S. Treasuries rose 2 basis points to 3.481% after tumbling 11 basis points on Tuesday.

OIL POWERS HIGHER

In commodities, oil settled up more than $2 a barrel after OPEC and the International Energy Agency (IEA) forecast a rebound in demand over the course of next year and as U.S. interest rate hikes are expected to ease further alongside slowing inflation.

U.S. crude settled up $1.94 at $77.28 per barrel and Brent finished $2.02 higher at $82.70 per barrel.

Expectations for a less aggressive monetary policy by the Fed also helped gold prices hold above the $1,800 per ounce pivot. Spot gold dropped 0.2% to $1,807.65 an ounce.

Bitcoin was flat at around $17,774 following the arrest of FTX exchange founder Sam Bankman-Fried, who was accused by U.S. prosecutors of fraud.

Reporting by Lawrence Delevingne in Boston, Harry Robertson in London and Tom Westbrook in Singapore. Editing by Arun Koyyur, Jonathan Oatis, Richard Chang, Sandra Maler and Marguerita Choy