Asia stocks hit 2-yr low on fresh credit fear

Asian stocks fell to a two-year low on Tuesday, led by exporter shares, on fears the U.S. government will have to bail out the top mortgage finance companies, further destabilising the financial sector.
European stock markets were expected to open between 0.7% and 1.1% lower, according to financial bookmakers, as fallout from the credit crisis mounted.
Wall Street tumbled after an article in Barron's said a government bailout could wipe out existing holders of Fannie Mae and Freddie Mac common stock with other asset holders also suffering losses.
The news seemingly put the bottom in the worst housing crisis since the Great Depression further out of reach, and confounded those expecting a U.S. recovery, at a time when the euro zone and Japanese economies are shrinking and could be lumbering toward recession.
The U.S. dollar extended a rally that has lasted two weeks, rising to a seven-month high against a basket of major currencies as investors liquidate holdings in metals and go back to the currency.
"There's a bit of a down draft from what happened in the U.S. overnight and commodities are a bit weak, too," said Michael Heffernan, a strategist and senior client adviser at Austock Securities in Sydney.
Japan's Nikkei share average tumbled 2.3% to a one-month low. Shares of index heavyweights Fast Retailing Co Ltd , a clothing retailer, and Canon Inc were among the biggest drags.
The MSCI pan-Asia equities index fell 1.7% to its lowest since July 2006, down 22% this year, while the MSCI's Asia-Pacific ex-Japan index fell for a third straight session to a 17-month low.
South Korea's KOSPI fell 1.7%, led down by consumer technology giant Samsung Electronics Co Ltd and the world's fourth-largest steelmaker, POSCO
Hong Kong's Hang Seng index slipped 0.6%, led down by property firms ahead of earnings due in the next few weeks.
"The Chinese stock market's steep losses since the Olympics (began) are also denting sentiment towards heavy industry such as steel makers and shipbuilders. There are worries the Chinese economy may not grow as robustly after the Olympics," said Won Jong-hyuck, a market analyst at SK Securities in Seoul.
Japanese government bonds climbed as equity markets declined, boosted by gains in U.S. Treasuries.
Bonds continued to draw support from worries about domestic and global economies, which were stoked after the Bank of Japan kept its interest rate target unchanged and lowered its economic assessment.
September 10-year futures rose 0.10 point to 137.94, approaching a four-month high of 138.12 hit last week.
U.S. Treasuries extended an overnight rally, with the 10-year note yield down 14 bps since the month began.
A further decline in gold and oil prices pounded metals as investors continued to liquidate their positions in anticipation of an easing in demand for raw materials.
Spot platinum prices dropped 6% to the lowest since last September. Gold shed 1.4% to below $788 an ounce, but held just above a 9-month low hit on Friday.
Crude slipped 38 cents to $112.49 a barrel on expectations that Tropical Storm Fay would bypass key assets in the Gulf of Mexico. Still, the continued presence of Russian troops in Georgia, in defiance of international pressure to withdraw, kept a floor under oil prices.
The U.S. dollar index, a basket of six major currencies traded on the ICE Futures exchange, rose 0.2% to the highest since January.
The euro eased 0.1% to $1.4661
Against the yen, the dollar was largely unchanged at 110.21 yen down from last week's seven-month high above 110.50.