The International Monetary Fund (IMF) warned Asian economies on Wednesday that the European debt crisis could still impact the continent's financial standing by diminishing trade activities, rendering capital flows volatile and overheating economies around the region.

IMF deputy managing director Naoyuki Shinohara said that the grim developments in Europe could disrupt global and regional trades, adding that major credit problems could lead to a substantial spillover through funding channels, specifically in cases where financial institutions were overly reliant on large-scale funding.

Mr Shinohara noted too that capital flows remained volatile with further uncertainty, pointing out that low interest rates in major economies would lure more capital that could lead to an increasing risk of overheating in some economies in the absence of correct policy measures.

He observed, however, that mounting risks in global risk aversion could hastily shift the direction of capital flows as he urged Asian governments to be cautious of the lingering dangers and make the necessary decision when needed.

Mr Shinohara said that owing to Asia's growing economic influence, its policy decisions should significantly affect the world economy but he reminded that it is important "for policymakers to keep an eye on the bigger picture and be ready to act swiftly as developments unfold."

The present debt crisis traces its roots on Greece's sovereign debt issue, which so far has dragged down the value of euro to its lowest in four years and threatened to trigger a eurozone crisis.

Mr Shinohara said that Asian markets have also been affected by the crisis but the solid fiscal position of most economies in the continent gave it the buffer to exercise flexibility in dealing with the European crisis, which is now being felt by Spain, Portugal, Ireland and latest casualty, Hungary.

The IMF has expressed optimism that majority of Asian economies would be able to weather the effects of the European debt crisis spillover by simply extending their existing fiscal stimulus programs.