Picture used for illustrative purpose. File

Asian shares dropped on Thursday, set for their worst day in two months, as warnings from US Federal Reserve officials underscored investor worries over the resilience of an economic recovery from the coronavirus pandemic.

MSCI's broadest index of Asia-Pacific shares outside Japan slumped 1.93% in the afternoon session on broad losses across the region, putting it on track for its biggest daily drop since July 16.

The MSCI index is also set for its biggest weekly drop since March, down more than 4% so far this week. Chinese blue-chips dropped 1.6%, Hong Kong's Hang Seng fell 1.7%, Seoul's KOSPI sank 2.59% and Australian shares fell 0.81%. Japan's Nikkei declined 1.11%. 

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US Federal Reserve Vice Chair Richard Clarida said on Wednesday that the US economy remains in a "deep hole" of joblessness and weak demand, and called for more fiscal stimulus, noting that policymakers "are not even going to begin thinking" about raising interest rates until inflation hits 2%.

"Have we overpriced the rebound in the economy? After the stern warning from Clarida, I say we have," said Stephen Innes, chief global markets strategist at AXI.

US stocks fell on Wednesday after data showed business activity slowed in September, with gains at factories more than offset by a retreat at services industries.

Investors now await weekly data due later on Thursday, which is expected to show US jobless claims fell slightly but remained elevated, indicating the world's largest economy is far from recovering.

Reuters