The Fed also reaffirmed plans to end its bond purchases around the same time, calling time on a long phase of easy money.

India's benchmark 10-year bond yield rose to 6.73%, up 7 basis points from its previous close and its highest level since Dec. 19, 2019.

So far in January, foreign investors have dumped $2.2 billion of Indian shares after having bought a net $3.76 billion in 2021. They had bought $23.29 billion worth shares in 2020 and $14.23 billion in 2019.

They are still however net buyers of $575.35 million worth debt so far this month after having sold $3.66 billion in 2021.

The partially convertible rupee was trading at 75.15/16 per dollar at 0555 GMT, after touching 75.24, its weakest since Dec. 23.

High global oil prices have added to bearish pressure on the rupee, as India imports more than two-thirds of its oil needs, and rising fuel costs will spur domestic inflation.

"The concerns around oil are still very much alive and we now have Fed tightening coming up," a senior trader at a private bank said.

Markets are likely to stay jittery, he added, as India's government is set to deliver its annual budget of Feb.1, while the Reserve Bank of India's monetary policy committee will meet on Feb. 7-9.

Economists at HDFC Bank expected volatility in rupee-dollar exchange rate to continue through early February.

"We see a trading range of 74.80-75.50 in the coming quarter with the off chance of a move towards 76 (likely to be met by RBI intervention)," they said in a note.

The bearish reaction to the prospects of a looming U.S. rate increase went far beyond India. South Korea's share market fell to its lowest level in nearly 14-months leading Asia's emerging markets lower, and regional currencies were broadly weaker.

(Reporting by Swati Bhat; Editing by Kim Coghill & Simon Cameron-Moore)

By Swati Bhat