TEMPO.CO, Singapore - Despite the long drum roll anticipating what could be the U.S. Federal Reserve's first monetary tightening in years, the odds of the Fed lifting interest rates this week have lengthened so much that emerging markets could be hit hard if it happened.

Emerging market currencies have tumbled, equities have fallen and bond yields have risen steadily since the middle of the year, when Fed officials flagged the possibility that they could lift their near-zero rates in the second half for the first time in nine years.

Expectations on timing had centred on September, but as U.S. inflation came in below target, commodity prices fell and China's slowing growth cast a chill over the global economy, a delay to December looks likely.

Only seven of 17 respondents polled by Reuters expect a Fed rate rise this week. But if the minority is proved right on Thursday, investors would have to swiftly revisit their projections for how far and fast the Fed will go, affecting the cost of money across markets.

"The market is pricing in a 30 percent probability, so it is not entirely priced in," said Claudio Piron, head of Asian rates and currency strategy at Bank of America Merrill Lynch (BofAML) in Singapore.

"So it's a difficult situation in a world where we do not have a synchronised global recovery, where arguably the world's most important liquidity provider is tightening policy, and that will continue to hit commodity prices."

Most analysts expect a less violent reaction than the "taper tantrum" of May-September 2013, when the Fed's first hints at reversing several years of stimulus caused a spike in bond yields and investors sold out of several emerging markets.

That's largely because anticipation has already taken its toll; MSCI's emerging markets equity index is down nearly 16 percent this year, and its Latin American index has tumbled 27 percent.

JPMorgan says feedback from clients is that global funds' exposure to emerging market equities is at multi-year lows. It estimates redemptions from emerging market equity funds this year are at $44 billion, not far off the $48 billion withdrawn during the global financial crisis in 2008 and $49 billion during the eurozone crisis in 2011.

Bond yields have risen, and foreign cash has bled from markets most vulnerable to higher yields, such as Indonesia, Turkey and Brazil.

BofAML analysts estimate emerging market currencies have weakened an average 20 percent since mid-2014, and several look undervalued against the dollar. Brazil's real has lost 31 percent this year.

What might happen beyond an initial sell-off if the Fed raises rates on Thursday will depend on the policy path it maps out.

Khiem Do, head of Asian multi-asset at Baring Asset Management in Hong Kong, expects a modest relief rally in emerging markets if the statement is dovish.

HSBC's Asia economist Frederic Neumann reckons investors are already positioned defensively in the region, and "a dovish hike might be less disruptive than a hawkish hold that would leave much of the uncertainty that plagued markets in recent months on the table".

The fly in the ointment could be China, which in previous Fed tightening cycles wasn't such a big source of global growth and demand.

"An emerging market relief rally won't come unless there is a clear sign that Chinese growth is stabilising, whether the Fed hikes or not," said Salman Ahmed, global fixed-income strategist at Lombard Odier in London.

REUTERS