More bad economic news is weighing on Japan's financial markets, while in Hong Kong the prospect of lower interest rates is encouraging investors.

The Japanese government said Friday that it expects gross domestic product will shrink 0.9 percent this business year. It would be the first full year contraction since 1998.

Heizo Takenaka is Japan's state minister in charge of economic and fiscal policy. He said Japan is seeing an economic downturn as the global economy contracts. He added that the information technology slump and the terrorist attacks in the United States have made matters worse. While the news comes as no surprise, it still dampened investor sentiment. The Nikkei Average fell two percent to 10,215, a one month low.

Banking shares came under heavy pressure amid concerns that the government lacks an effective plan to cope with a mountain of bad debts burdening the country's financial institutions.

In Hong Kong, Asia's second largest market, falling interest rates are renewing investors' appetite for stocks since rates on savings accounts are edging lower. Real estate stocks were also strong. Developers Sun Hung Kai and Henderson Land each gained five percent or more.

In Singapore, equities rose for the second session in a row. The Straits Times Index added on two percent to close at 1,362. Computer stocks were good performers. Creative Technology, a computer sound card maker, rose eight percent and Chartered Semiconductor Manufacturing rose 1.5 percent. Investors are banking on a sector-wide recovery.