Asian economies, led by China and India, were among the most dynamic in the world during 2006. Many economies expanded by well over than six percent, and with new capital flowing into stock markets and exports climbing, many Asian stock markets hit record highs. However, economists and financiers say 2007 will see a modest slowdown in growth and markets. Claudia Blume reports from VOA's Asia News Center in Hong Kong.

2006 was aboom yearfor Asian nations, with the Asian Development Bank projecting 7.7 percent full-year growth for the region's developing countries.

India and China together account for over 50 percent of the region's gross domestic product, and they led the boom. China's gross domestic product grew by more than 10 percent in 2006, and India expanded by more than eight percent.

Japan, the world's second largest economy, also gave the region a lift, with its longest period of recovery since falling into a slump more than a decade ago.

Masahiro Kawai, an economist with the A.D.B. in Manila, says strong global demand for Asian exportsfueled the growth.

He said, "Mainly because of the external market expansion on the part of the U.S. The U.S. growth rate has been high, [as it was in] Europe, [and] also Japan."

"External environments have been quite good, and domestic demand has also expanded -- you know investment, [and] consumption -- so generally speaking this ... has been a very good year," he continued.

Howard Gorges, vice chairman of the South China Brokerage in Hong Kong, says the strong U.S. economy helped drive Asian stock markets to new heights. Several hit record levels.

By mid-December, Hong Kong's Hang Seng Index was up about 25 percent from a year earlier, Mumbai's Sensex index had soared more than 40 percent and Jakarta's Composite Index had gained more than 50 percent. In the United States, the Dow Jones Industrial Average, the most-watched stock index in the world, was up about 16 percent through mid-December.

China's stock markets, which went nowhere for years, boomed in 2006; the Shanghai composite index doubled in value. In large part, initial public share offerings by state-owned companies drove the market. One listing alone -- for China's biggest lender, the Industrial and Commercial Bank of China -- raised a record $22 billion.

Howard Gorges says China has become very popular with foreign fund managers.

"It's the persistent high growth rates, the strength of their foreign-exchange reserves, the pressure on them to revalue their currency [that] has brought foreign money. And indeed, the currency has revalued about five to six percent in the last year or so, and people expect further gradual revaluation - so that's all helped," he said.

Even high oil prices did little to stop Asia's gains. Strong exports cushioned the effects of rising energy costs, and tighter monetary policy in most capitals helped stall inflation.

A decade ago, the region was beginning to feel the first rumblings of what would become the Asian economic crisis.

By mid-1997, that was in full force: plunging currency values, unsustainable levels of foreign debt and soaring interest rates sank most of Asia into a severe recession. Full recovery came only a few years ago.

The A.D.B.'s Kawai says in general, Asian economies are far more resilient than they were a decade ago.

He said, "Many Asian countries have accumulated foreign-exchange reserves, for example, and they have repaid external debt."

"They have been working on banking system restructuring, on banking system reform. They have been working on capital market development..... Regional financial cooperation has been strengthened and economic and financial vulnerabilities have been substantially reduced," he continued.

Many economists in Asia think the region is likely to see growth ease off slightly over the coming year, however, largely because an expected slowdown in the U.S. economy will cut demand for exports. Also, China's efforts to cool its economy are likely to trim regional growth.

The credit ratings agency Standard & Poor's expects corporate earnings growth to slow down in the new year, with central banks either tightening money supply or raising interest rates to prevent inflation.

This forecast means Asia's stock markets probably will not rise quite as much in 2007 as they did in 2006.

But as countries increasingly rely on trade within the region, growth across Asia will not slow very much. The A.D.B. forecasts average growth of 7.1 percent for developing Asian economies in 2007.

However, bank economist Kawai warns the region cannot continue to rely on export growth, and needs to increase domestic demand.

He says China, in particular, needs to encourage households to spend more, to fuel growth. And China's corporations and government need to become more selective, and improve the quality of investments.

Other countries in Asia, Kawai says, need to continue making economic and regulatory reforms that will encourage domestic and foreign investment.