GLOBAL MARKETS - Asia stocks hit 2-yr low on fresh credit fear

By Kevin Plumberg

HONG KONG (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 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 percent 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 percent to its lowest since July 2006, down 22 percent this year, while the MSCI's Asia-Pacific ex-Japan index fell for a third straight session to a 17-month low.