* MSCI pan-Asia index at lowest since July 2006
* Japan's Nikkei, down 2.3 pct, leads region lower
* U.S. dollar rises to 7-month high as metals weaken
(Updates prices, adds European outlook)
By Kevin Plumberg
HONG KONG, Aug 19 (Reuters) - 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 percent and 1.1 percent 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 <FNM.N> and Freddie Mac <FRE.N> 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 <.DXY> 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 percent to
a one-month low. Shares of index heavyweights Fast Retailing Co
Ltd <9983.T>, a clothing retailer, and Canon Inc <7751.T> were
among the biggest drags.
The MSCI pan-Asia equities index <.MIAS00000PUS> fell 1.7
percent to its lowest since July 2006, down 22 percent this
year, while the MSCI's Asia-Pacific ex-Japan index
<.MIAPJ0000PUS> fell for a third straight session to a 17-month
low.
South Korea's KOSPI <> fell 1.7 percent, led down by
consumer technology giant Samsung Electronics Co Ltd
<005930.KS> and the world's fourth-largest steelmaker, POSCO
<005490.KS>.
Hong Kong's Hang Seng index <> slipped 0.6 percent, 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 <2JGBv1> 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 <US10YT=RR> 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 <XPT=> dropped 6 percent to the lowest
since last September. Gold <XAU=> shed 1.4 percent to below
$788 an ounce, but held just above a 9-month low hit on Friday.
Crude <CLc1> 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 percent to the
highest since January.
The euro eased 0.1 percent to $1.4661 <EUR=>.
Against the yen, the dollar was largely unchanged at 110.21
yen <JPY=>, down from last week's seven-month high above
110.50.
