KUALA LUMPUR, Malaysia (AP) -- Asian stock markets took a beating Friday, as investors remained edgy about whether the U.S. Federal Reserve might start to reduce its monetary stimulus program this year and signs of economic stress in China.
Asian markets were also pulled down by signs of a worsening slowdown in manufacturing in China this month. A big jump in the overnight lending rate in China also unsettled investors.
Asia's biggest benchmark, Japan's Nikkei stock average, lost 0.6 percent to 12,935.77. Hong Kong's Hang Seng index dropped 1.5 percent to 20,076.86, while South Korea's KOSPI index shed 1.9 percent to 1,816.27. Benchmarks in Singapore, Taiwan, the Philippines and Indonesia also fell.
For nearly five years, the Fed has been pursuing an aggressive monetary policy to shore up the U.S. economy, which was battered by the financial crisis in 2008. Now that the U.S. economy has shown signs of improvement, Fed Chairman Ben Bernanke says the central bank is considering when it should start normalizing its policy.
In the latest round of its monetary stimulus program — known as quantitative easing, or QE — the Fed has been buying $85 billion worth of financial assets each month to keep long-term interest rates low. Earlier this week, Bernanke said purchases will likely slow down this year and end next year.
"Asia has benefited from U.S. capital inflows, partly in relation to QE. It has been forcefed with steroids, and now that the steroids are going to be pulled back, what will happen is a period of transitional volatility that can continue through summer," said Mitul Kotecha, analyst with Credit Agricole CIB.
The Dow shed 2.3 percent on Thursday, its biggest loss since November 2011. The index has lost 560 points in the past two days, wiping out its gains from May and June. The Standard & Poor's 500 lost 2.5 percent Thursday while oil and gold prices also slid.
Some investors said the sell-off in stocks may be overdone. The Fed is considering easing back on its stimulus because the economy is improving. The central bank has upgraded its outlook for unemployment and economic growth.
The S&P 500 is still up 11.3 percent, for the year, not far from its full-year increase of 13.4 percent last year.
Benchmark oil for August delivery rose 14 cents to $95.28 per barrel in electronic trading on the New York Mercantile Exchange. The contract fell $2.84 to close at $95.40 on the Nymex on Thursday.
In currencies, the euro rose to $1.3236 from $1.3197 late Thursday in New York. The dollar fell to 97.26 yen from 97.34 yen.