A currency trader watches monitors at the foreign exchange dealing room of the Korea Exchange Bank headquarters in Seoul, South Korea, Thursday, June 20, 2013. Asian stock markets plummeted Thursday after the U.S. Federal Reserve said it could start scaling back its huge economic stimulus program later this year. South Korea's benchmark Kospi dropped 2.12 percent at 1,848.29. (AP Photo/Ahn Young-joon)

MANILA, Philippines - World stock markets fell sharply Thursday after the U.S. Federal Reserve said it could start scaling back its huge economic stimulus program later this year and a survey showed a slowdown in manufacturing in China.

The Fed has been buying $85 billion worth of bonds each month to keep long-term interest rates low to boost borrowing and spending. On Wednesday, however, the Fed said the U.S. economy was strengthening, and Chairman Ben Bernanke said the bank's purchases will likely slow down this year and end next year.

The announcement Wednesday in Washington drew a sharp reaction in financial markets, showing just how dependent investors have become on the Fed's easy money policies. Normally, stock markets go up when the economic outlook improves.

"Any whiff there's going to be reduction in the (Fed's) ammunition is met with selling," said James Camp, managing director of fixed income at Eagle Asset Management.

In early European trading, Britain's FTSE 100 dropped 1.9 per cent to 6,228.03. Germany's DAX lost 2.1 per cent at 8,026.27. France's CAC-40 shed 2 per cent to 3,761.75. On Wall Street, futures fell ahead of the opening bell. Dow Jones industrial futures dipped 0.5 per cent to 14,976 while S&P 500 futures fell 0.6 per cent to 1,614.20.

Tokyo's Nikkei 225, the region's heavyweight, closed 1.7 per cent lower at 13,014.58. Benchmarks in South Korea, Singapore and Australia each fell at least 2 per cent.

The benchmark in the Philippines slightly recovered from bigger drops earlier in the day, ending 2.9 per cent lower. Indonesia's Jakarta Stock Exchange Composite Index was more than 3.5 per cent down.

Hong Kong's Hang Seng index tumbled 2.9 per cent to 20,382.87 after a private survey showed a slowdown in manufacturing in China for the month of June. Mainland Chinese shares also fell. HSBC's preliminary purchasing managers index fell to a nine-month low of 48.3 in June, down from 49.6 in May. Numbers below 50 indicate a contraction.

Andrew Sullivan of Kim Eng Securities in Hong Kong said what is worrying is that it's the second month that the PMI fell below 50, indicating further slowing ahead.

"We all know that (China) has been trying to reorient its economy from being an exporting one to more domestic consumption, and that process is going to take time," he added.

Sullivan said a number of banks have been lowering their growth forecasts for China recently and "the concern will be whether we see another round of forecasts being cut."

Among individual stocks, Japan's Suzuki Motor Corp. fell 6.2 per cent. Nikon Corp. plunged 5.8 per cent. Sony Corp. finished 0.1 per cent down after rising slightly on the heels of a shareholders' meeting at which Chief Executive Kazuo Hirai said the company was going to take time to study a proposal to spin off a part of its entertainment unit.

Benchmark oil for July delivery fell $2.21 to $96.27 per barrel in electronic trading on the New York Mercantile Exchange. The contract rose 67 cents to close at $98.44 a barrel on the Nymex on Tuesday.

In currencies, the euro fell to $1.3203 from $1.3274 late Wednesday in New York. The dollar rose to 98.14 yen from 96.54 yen.

News from © The Associated Press, 2013