Asian stock markets fell Thursday after the U.S. central bank predicted an even deeper recession in America's economy.

Benchmarks in Tokyo, Hong Kong and other major markets were lower by about one per cent.

Investors across the region were scaling back risky bets on stocks after the Federal Reserve cut its outlook for all of 2009, saying the U.S. economy could shrink between 1.3 and two per cent compared to the prior estimate of 0.5 and 1.3 per cent.

In an ominous sign for Asian exporters that rely on U.S. consumer demand, the Fed policymakers said the unemployment rate could approach 10 per cent.

'A correction is imminent'

With markets up 30 per cent or more over the last couple of months, investors are growing more cautious as they try to determine whether the rally was overdone or has more upside.

"A lot of the economic evidence is a bit better but still very bad," said Peter Lai, investment manager at DBS Vickers in Hong Kong. He said the Fed's unemployment projections were especially unsettling.

"I'm just not comfortable buying at these levels to be honest, and [I] think a correction is imminent," he said.

Japan's Nikkei 225 stock average lost 111.74 points, or 1.2 per cent, to 9,232.90, and Hong Kong's Hang Seng shed 159.35 points, or 0.9 per cent, to 17,316.49.

Elsewhere, South Korea's Kospi dropped 1.1 per cent to 1,420.34. Shanghai's index fell 1.1 per cent, Australia's was off 0.5 per cent, while Taiwan rose 0.1 per cent.

U.S. markets down

The Fed's outlook, contained in minutes of its recently policy meeting released Wednesday, reined in optimism on Wall Street, with banks taking the brunt of the selling.

The Dow Jones industrials fell 52.81, or 0.6 per cent, to 8,422.04. The blue chip guage had been up as much as 117 points in early trading. The Standard & Poor's 500 index slipped 4.66, or 0.5 per cent, to 903.47.

U.S. futures pointed to more gloom on Wall Street Thursday. Dow futures fell 31, or 0.4 per cent, to 8,364 and S&P futures dropped 3.8, or 0.4 per cent, to 896.10.

Oil prices eased off six-month highs in Asia, with benchmark crude for July delivery down 45 cents to $61.59 US a barrel. On Wednesday, the July contract rose $1.94 to settle at $62.04 after the government said U.S. crude inventories fell for a second week, suggesting demand may be improving.