The Chinese economy should expand by 10.5 percent following a strong rebound in exports and resilient domestic demand, the fund said, revising upwards its April forecast of 10.0 percent.

India's growth this year was revised higher to 9.4 percent from 8.8 percent as robust corporate profits and favorable financing conditions fuel investment.

With the upward revisions for the world's two most populous countries, gross domestic product growth for the whole of Asia in 2010 was revised up to 7.5 percent from 7.0 percent in April.

However for 2011, when stimulus programmes are expected to be withdrawn in several countries, Asia's growth is expected to settle to "a more moderate but also more sustainable rate" of 6.8 percent, the International Monetary Fund said in a report.

It said China's growth could slow to about 9.6 percent in 2011, as further measures are taken to slow credit growth and maintain financial stability.

Olivier Blanchard, IMF economic counsellor, told a press conference in Hong Kong that China was moving in the right direction by encouraging domestic consumption and allowing greater latitude for its currency.

"China's decision to boost internal demand and allow more flexibility for the yuan is very welcome," he said. "Its shift from investment to domestic consumption is very desirable."

Jose Vinals, the IMF's financial counsellor, said China's predicted slowdown in growth in 2011 was mainly due to a general slowing in the macro-economic environment.

The fund expects India's growth to slow to 8.4 percent next year.

In Japan, growth is now expected to reach 2.4 percent in 2010, due mainly to stronger-than-expected exports during the first half, before easing to about 1.8 percent in 2011 as fiscal stimulus gradually tapers off.

The five key Southeast Asian economies of Indonesia, Malaysia, the Philippines, Thailand and Vietnam are likely to grow by an average of 6.4 percent in 2010 and 5.5 percent next year.

Following warnings by the fund earlier this year about the formation of asset bubbles in Asia, such problems in the market had eased, Vinals said.

But the IMF warned that any stalling in the European recovery could affect Asia through both trade and financial channels, even though the region has only limited direct financial linkages to the most vulnerable euro-area economies.

"Many Asian economies (especially the newly industrialized economies and the ASEAN economies) are highly dependent on external demand, and their export exposure to Europe is at least as large as their export exposure to the United States," the report said.

However, in the event of "external demand shocks," large economies such as China, India and Indonesia could provide a cushion to growth, it said.

The report pointed out that significant contagion effects from a Europe-wide credit problem could hit bank funding and corporate financing, especially in those regional economies more dependent on foreign currency financing.

But in the event of such contagion, Asian central banks could swiftly redeploy tested instruments, such as a US dollar liquidity swap facility, to overcome market seizures.

"Many regional economies also have room for further policy manoeuvre and could delay the planned withdrawal of monetary and fiscal stimulus in order to mitigate adverse spill-overs to the real economy," it said.

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