By JEREMIAH MARQUEZ, AP Business Writer Jeremiah Marquez, Ap Business Writer

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21 mins ago

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.

Benchmarks in Tokyo, Hong Kong and elsewhere sank around 3 percent 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 percent, 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 percent and warned that a drop in investment in developing countries will increase poverty. The bank’s previous forecast was for a 1.7 percent 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.”

Japan’s Nikkei 225 stock average lost 276.66, or 2.8 percent, to 9,549.61 while Hong Kong’s Hang Seng shed 512.36, or 2.8 percent, to 17,547.19

South Korea’s Kospi lost 2.8 percent, Australia’s index was off 3.1 percent and Taiwan’s benchmark dropped 2.3 percent. Shanghai’s main stock measure traded lower by 0.1 percent.

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 the 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.

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 percent, to 8,339.01, its lowest finish since May 27.

The Standard & Poor’s 500 index fell 28.19, or 3.1 percent, to 893.04, also leaving the index with its biggest slide since April 20 and erasing its advance for the year.

Wall Street futures pointed to modest gains Tuesday. Dow futures rose 17 points, or 0.2 percent, to 8,300 and S&P futures gained 3, or 0.3 percent, to 891.20.

Oil prices fell on expectations demand will remain weak. Benchmark crude for August delivery was down 52 cents at $66.98 in Asian trade.

In currencies, the dollar weakened to 95.32 yen from 95.48 yen. The euro was higher at $1.3881 from $1.3844.