HONG KONG - Asian stock markets tumbled Tuesday, knocked by heavy losses on Wall Street after the World Bank warned of a sharper contraction in the world economy. European markets were lower in early trade. Benchmarks in Tokyo, Hong Kong and elsewhere in Asia sank around 3 per cent in a broad-based rout as the bank's gloomy forecast undermined hopes of a quicker end to the worst recession in decades. Crude oil prices and the dollar also declined. Global markets have risen massively since March, with some like Hong Kong up nearly 60 per cent, on signs the recession is leveling out and expectations of a return to growth in the U.S. in the second half of this year. But the World Bank issued new and much more pessimistic forecasts. It expects the world economy to shrink by 2.9 per cent and warned that a drop in investment in developing countries will increase poverty. The bank's previous forecast was for a 1.7 per cent contraction. The news added to growing unease in the market over a spring rally that many investors believe has pushed prices too high, too fast and overestimated the scope of any economic recovery. Wall Street's overnight drop also provided a catalyst. "The markets have been overbought, and now the correction is beginning," said Peter Lai, investment manager at DBS Vickers in Hong Kong. "Investors are facing the reality again. People fear the liquidity and funds will start flowing out of the markets, so we're seeing profit taking." Early in Europe, Britain's FTSE 100 fell 0.3 per cent, Germany's DAX shed 0.1 per cent and France's CAC 40 lost 0.5 per cent. Stock futures pointed to modest gains Tuesday on Wall Street. Dow futures rose 13 points, or 0.2 per cent, to 8,296 and S&P futures gained 0.6, or 0.1 per cent, to 889.20. In Asia, Japan's Nikkei 225 stock average lost 276.66, or 2.8 per cent, to 9,549.61 while Hong Kong's Hang Seng shed 521.19, or 2.9 per cent, to 17,538.36. South Korea's Kospi lost 2.8 per cent, Australia's index was off 3.1 per cent and Taiwan's benchmark dropped 2.3 per cent. Shanghai's main stock measure traded lower by 0.1 per cent. India's Sensex lost 1.2 per cent. As expectations of higher economic growth wilted, so did shares of resource companies, which have bloomed in recent weeks. BHP Billiton Ltd., the world's largest mining company, slid 4.1 per cent in Australia, and heavyweight oil company PetroChina shed 4.5 per cent in Hong Kong. Whether the markets suffer more declines in the coming days could well hinge on figures due this week on U.S. housing, incomes, gross domestic product and other indicators. Investors will also pay close attention to the U.S. Federal Reserve's comments on the state of world's largest economy when it concludes a two-day policy meeting on Wednesday. The central bank is expected to leave its key interest rate unchanged at close to zero. Any selling, though, could be offset by institutional investors with large cash holdings looking to get into the market at a lower prices. Such liquidity has helped drive the recent surge in global markets. About US$508 million of fresh money flowed into equity investment funds in the week ending June 17, according to a survey by EPFR Global, a Boston-based firm that tracks global fund flow data. So-called emerging market funds accumulated the most money, with Asian funds outside Japan reaping some $693 million, helping make up for outflows in the U.S., Japan and Europe. It marked the 15th straight week that emerging market funds took in new money, EPFR said. Overnight U.S. traders, also unnerved by the World Bank report, dragged stocks to their largest declines in two months. The Dow fell 200.72, or 2.4 per cent, to 8,339.01, its lowest finish since May 27. The Standard & Poor's 500 index fell 28.19, or 3.1 per cent, to 893.04, also leaving the index with its biggest slide since April 20 and erasing its advance for the year. Oil prices fell on expectations demand will remain weak. Benchmark crude for August delivery was down 64 cents at $66.87 in late Asian trade. In currencies, the dollar weakened to 95.06 yen from 95.48 yen. The euro was higher at $1.3879 from $1.3844.

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