The boost to Turkey's lira from a round of huge interest rate hikes quickly faded on Wednesday, while the rand fell as the market focus switched to monetary policy decisions due later in the day in South Africa and from the U.S. Federal Reserve.

Turkish debt insurance costs fell and the country's recent dollar bond rallied after the central bank jacked up all of its interest rates late on Tuesday, in a move investors saw as long overdue.

The biggest immediate impact of the move was on the lira, which initially rose more than 3 percent but later eased off session highs to stand at 2.22 as of 1050 GMT, still up nearly 1 percent on the day.

"The Turkish rate move was more aggressive than many people had expected. That was the good part of the story," said Ulrich Leuchtmann, head of currency research at Commerzbank in Frankfurt.

"But the market had to force this activity. There is still a fear in the market that the central bank does not have a reaction function."

Turkey's central bank move follows a massive lira sell-off caused by the prospect of a reduction in U.S. stimulus that has sucked investor cash out of the most vulnerable emerging economies. Investors deem real interest rates in these markets too low to compensate for growing economic and political risks.

Turkish Finance Minister Mehmet Simsek addressed one of those concerns on Wednesday, saying that economic growth will not be severely damaged by the rate hikes and that it is too early to adjust the government's forecast of 4 percent growth this year.

The rate rise follows similar moves across the developing world, with India unexpectedly raising rates this week and Brazil and Indonesia already in policy-tightening mode.

But Malaysia's central bank left rates unchanged on Wednesday, taking the ringgit to the day's lows. And with the U.S. Federal Reserve expected to announce plans later on Wednesday to shave another $10 billion off its monthly bond buying, emerging markets remained fragile.

SOUTH AFRICA

South Africa's rand gave up early gains to drop 1.7 percent towards recent five-year lows, while currencies such as Hungary's forint also suffered, dropping 1 percent.

Analysts expect South Africa's central bank to keep its interest rates unchanged at 1300 GMT.

Swap markets, however, are pricing in a roughly quarter point rate hike, and banks say 100 basis points in policy tightening is factored in for the next six months.

South African bond markets have seen heavy outflows in recent sessions, with the benchmark yield having risen 30 bps since the start of this week.

"Although the (central bank) will be very reluctant to hike rates in such a weak growth environment, failure to do so risks South Africa getting left in the wake of other emerging markets that have been hiking aggressively," analysts at Tradition said in a note.

Others, however, point to South Africa's weak domestic demand and lower inflation compared to Turkey or India and reckon an interest rate rise is unlikely.

"The slowdown in Chinese demand and the fall in mining output because of strikes have been at the root of export weakness and the current account deficit. I am not sure (a rate hike) will solve South Africa's external problems," said Claire Dissaux, head of economics and strategy at Millennium Global.

On equities, the main emerging index rose nearly 1 percent off 4-1/2 month lows, but Turkish stocks reversed early gains to drop 1 percent.

Ukraine's debt insurance costs fell, according to Markit, after the country's prime minister resigned on Tuesday, although Standard & Poor's downgraded the country to CCC+ with a negative outlook, citing rising political instability.

The move comes a month after the agency raised Ukraine's outlook, following Kiev's $15 billion bail-out by Russia.