Asian shares sagged on Wednesday after losses on Wall Street and as investors locked in profits as they waited to hear what the U.S. Federal Reserve would say about prospects for recovery in the world's largest economy.

Shares in Seoul and Tokyo fell while the MSCI index of Asian markets excluding Japan slipped 1 percent, still in retreat from last week's 11-month peak.

The Fed started its two-day meeting on Tuesday, with expectations that it will leave benchmark interest rates near zero and let a $300 billion program to buy Treasury securities expire on schedule in September as economic gloom lifts.

But after a report showing U.S. firms continue to cut inventories as they lack confidence in the economy, analysts expect the Fed will try to dampen speculation about higher interest rates while still supporting hopes that the makings of a recovery are at hand.

Its statement is due at about 2:15 a.m. EDT.

In Tokyo the Nikkei <.N225> pulled back from 10-month highs, with Japan's No. 2 drug company, Astellas Pharma <4503.T>, down after a ratings downgrade following news that a Novartis unit had launched a generic version of Astellas' key Prograf transplant drug.

There's some concern that the Nikkei has been overbought, and that put together with inability to read what the Fed might do is leading to profit-taking, said Takashi Ushio, head of the investment strategy division at Marusan Securities.

Chinese stocks tumbled, with the Shanghai Composite Index <.SSEC> falling 3 percent to four-week lows on worries about a possible tightening of market liquidity following a sharp drop in bank lending in July. The Hang Seng index <.HSI> fell 2 percent, coming down from a 12-month closing high the previous day.

In Seoul, the Korea Composite Stock Price Index <.KS11> shed 1.3 percent, although shares in LCD maker LG Display <034220.KS> rose on expectations of a glass shortage after an earthquake in Japan on Tuesday disrupted production.

In Australia, stocks <.AXJO> were steady, supported by a rise in Commonwealth Bank of Australia Ltd which gained as investors took an optimistic view of its earnings results and outlook, even though the bank itself gave a cautious view.

Wall Street fell after a prominent banking analyst warned the sector's fundamentals had yet to improve and the drop in wholesale inventories raised worries about recovery. <.N>

U.S. wholesalers cut their inventories of unsold goods for the 10th month in a row in July.

Output per worker rose at its fastest pace in six years in the second quarter as businesses wrung more productivity from fewer staff, suggesting any significant recovery in the U.S. jobs market is some way off.

The benchmark Standard & Poor's 500 index <.SPX> fell 1.27 percent and the Dow Jones Industrial Average <.DJI> shed 1.03 percent.

U.S. crude futures inched up toward $70 a barrel following a surprise crude stock drawdown in weekly inventory data from the industry group American Petroleum Institute.

The yen rose against the dollar, extending gains of the previous day as investors liquidated yen short positions ahead of the Fed on the view that the Japanese currency's slide after last week's U.S. jobs data had run its course for now.

The dollar slipped 0.4 percent to 95.65 yen and the Australian dollar dropped 0.6 percent to 79.04 yen.

The euro was steady at $1.4150.

U.S. Treasury debt prices held steady after rising in the previous session, with the market waiting to see if the Fed signals it will let its Treasury buying program expire and pausing ahead of a 10-year note auction later.

(Editing by Kazunori Takada)

Australia Japan Nikkei 225 Fall