WASHINGTON (MarketWatch) -- The Federal Reserve surprised financial markets Thursday by lifting the lending rate it charges banks, one of the most potent signs yet that the central bank is focused on dismantling the emergency policies crafted to battle the financial crisis.

In a statement shortly after the stock market closed, the Fed said it would raise its discount, or primary credit rate, to 0.75% from 0.5% effective on Friday.

At the same time, however, the Fed sought to counter the impression that its decision indicates an imminent tightening of its target interest rate, saying. "The modifications are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy or for monetary policy."

That didn't stop a sharp reaction in financial markets. The dollar spiked and stocks retreated in after-hours trading. In fixed-income markets, Treasury prices fell and yields jumped.

Although analysts had said a discount-rate increase was in the offing soon, most Fed watchers weren't expecting such a move this early.

Just last week, Ben Bernanke signaled that the Fed was mulling the increase. As a result, experts tended to think it would come at the next meeting, in March, of the central bank's rate-setting Federal Open Market Committee. Thursday's action suggests a new sense of urgency on the part of the key panel's officials.

The Fed has gone to great pains to describe the move as a mere technicality. In its statement that was made public 30 minutes after the markets closed, the Fed reiterated its view that "economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period."

In a speech on Thursday night, Dennis Lockhart, the president of the Atlanta Federal Reserve bank, said he was worried the recovery may sputter and the unemployment rate may remain stubbornly high.

The current ultra-low stance of interest rates "is necessary to support a recovery that in is in an early stage, and, in my view, still fragile," Lockhart said.

Analysts agreed that while symbolically significant, raising the discount rate is isolated from a broader tightening of policy.

In another sign it wants banks to rely on private capital, the Fed also said the maximum maturity for discount window loans will be shortened to overnight instead of today's lax policy of as much as 90 days. That change will take effect on March 18.

During the financial crisis, the Fed lowered the discount rate to get banks to tap into its aid because there was nowhere else for them to get funds.

Banks were not lending to each other because there was no trust in their balance sheets. No one knew where there might be further losses from the collapse of the real estate bubble and complex derivatives tied to subprime mortgages.

The Fed said the discount rate hike was the culmination of several recent steps to phase out its emergency lending programs put in place during the financial crisis. The Fed let several of these facilities expire on Feb. 1.

Lending at the discount rate window has declined sharply since the peak of the crisis in October 2008. The Fed reported that outstanding discount window loans totaled $14.16 billion on Wednesday, down from $51.7 billion a year ago and about $111 billion in October 2008.

Fed watchers believe that there has to be a tangible improvement in the labor market before the Fed would pull the trigger in raising the fed funds rate, a vastly more influential policy lever. The rough consensus is that the Fed may make the such first rate hike in October, although many see virtually no chance of an increase this year.

"The move itself by the Fed does not mean that the Fed is ready to hike rates or has a set time for such a move, but it does mean that the Fed is preparing the way," said Robert Brusca, chief financial economist at FAO Economics.

"With this shift...the Fed will be able to monitor markets and see if they are back to what it would regard as normal functioning. This is very much a move to prepare markets and to test markets to see if they are ready to absorb a rate increase by putting the Fed's lending vehicles back in a normal configuration," Brusca said.

The change in the discount rate was approved by the Fed board of governors on requests from all 12 district bank boards.

Former Fed governor Laurence Meyer drew attention to the possibility of a discount- rate increase early this year. Meyer said Fed officials were unhappy that banks were engaging in a carry-trade, or borrowing from the Fed at ultra-low levels and then reinvesting the money elsewhere at a higher rate of return.

As a result of the Fed's hike, the spread between the target federal funds rate and the discount rate widened to 50 basis points from 25 basis points. Prior to the financial crisis, that spread had been 100 basis points. A hundred basis points equal 1 percentage point.

The Fed said it will "assess over time" whether further increases in the spread are appropriate.