The dollar hit its lowest in two months against the yen and Asian stocks fell on Thursday after news that the Federal Reserve lowered its forecasts for U.S. economic growth over the next three years. Japan's Nikkei average .N225 slipped 1.2 percent, dented by the stronger yen which weighed on exporters including Honda Motor Co (7267.T) and by technology shares which fell after the world's biggest PC maker, Hewlett-Packard (HPQ.N), tempered its outlook for 2009. Oil gave back some gains after rallying to a six-month high, dipping below $62 a barrel after jumping more than 3 percent on Wednesday on news of a deep drop in U.S. crude and gasoline stockpiles. The dollar plunged to its lowest in nearly five months against the euro and a basket of six major currencies .DXY on Wednesday after minutes showed Fed policymakers had mulled buying more securities at their last policy meeting in April to spur recovery-- a move which would inject more dollars into the market. It continued to teeter in Asian trade, hurt as well by investor enthusiasm for risk in other currencies after Treasury Secretary Timothy Geithner said the U.S. financial system was "starting to heal" thanks to the government's bailout efforts. In fresh quarterly forecasts, the Fed projected the U.S. economy would contract by between 1.3 percent and 2.0 percent this year, with the unemployment rate rising to between 9.2 percent and 9.6 percent. In January, the Fed had forecast a milder contraction of between 0.5 percent and 1.3 percent, with the jobless rate rising to between 8.5 percent and 8.8 percent. "As long as U.S. equities are not sliding sharply, the tendency in the currency market is to view the global recovery as still on," RBS strategist Alan Ruskin wrote in a client note. Near-zero U.S. interest rates, reallocation of funds parked in low-yielding U.S. assets to weather the financial crisis and latent concerns about the Fed's securities buying program were all conspiring to weigh on the dollar, Ruskin said. "Taken collectively and despite a poor equity close, the market is still in a mood to buy the risk trade dip, without convincing evidence to do otherwise." The dollar dropped 0.5 percent to 94.28 yen and eased to $1.3797 per euro, after a trough below $1.3830 on Wednesday, and it hovered just above a seven-month low against the Australian dollar set the previous day. The MSCI index of Asian shares outside Japan .MIAPJ0000PUS eased 0.3 percent after hitting its highest in more than seven months on Tuesday. Hong Kong .HSI fell 1.3 percent, while Australia's S&P/ASX 200 index .AXJO shed 0.6 percent with bank stocks leading the decline as optimism over the global economic recovery waned on the Fed's cut in growth forecasts. Shares in Seoul slipped 0.6 percent after losses on Wall Street and as a stronger won weighed on automakers. The gloomier Fed forecasts sent U.S. stocks lower.

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