SINGAPORE -- Soaring food and fuel prices are now East Asia's biggest challenge, even more than the US financial turmoil which is roiling global markets, the World Bank said on Tuesday.

In its half-yearly report on East Asia, it said the region could see an aggregate income loss of one percent of gross domestic product due to price increases, which it said were hitting the poor especially hard.

"Dealing with high food and fuel prices probably constitutes a greater challenge to governments in East Asia than the financial turmoil in the United States and a slowing global economy," it said.

The bank defines East Asia as including Southeast Asia and most other countries in the region, including China but not Japan.

Oil and rice, a food staple across the region, are among those items now seeing soaring prices.

"Rising food prices are exacerbating headline inflation and hurting the incomes of the poor," the bank said.

"These developments could stall or even set back the progress made in reducing poverty over the last decade, while heightening political tensions," it said.

"Income losses of this size perhaps could have been overlooked when the region's economy was growing very rapidly in 2006-07," the World Bank said.

But it warned that if the global credit crisis leads to significantly lower growth in East Asia, the losses "could have a more negative effect."

Food expenses in East Asia account for 31-50 percent of the consumption basket compared with 15 percent in the United States, according to the bank.

"The sharp rise in international food prices is likely to have a significant impact on the living standards of the poor throughout the developing world, posing one of the more urgent and difficult problems facing governments today," it said.

Measures such as price controls may stabilize the situation but are likely to be temporary and could backfire in the long term, it said.