Asian Markets Fall Sharply, Japan Sinks 2.3%

Asian markets fell to a two-year low Tuesday, led by exporter shares, on fears the U.S. government will have to bail out the top mortgage finance companies, further destabilizing the financial sector.

Wall Street tumbled and shares of Fannie Mae and Freddie Mac fell to the lowest in nearly 20 years after an article in Barron's said a
government bailout could wipe out existing holders of the two companies' 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.

Worries about the global economy bolstered government bond prices, while the dollar was largely steady -- taking a break from its sharp gains over the past two weeks.

Oil prices settled lower in New York as fears over a storm in the gulf of Mexico eased, while the U.S. dollar paused after its 11-day climb as lower stock markets and commodity prices weighed. Crude is currently trading below the $112 a barrel level in Asian trade.

Japan's Nikkei 225 Average sank 2.3 percent to a one-month low, led down by exporters and banks after investors were hit again by recurring fears that U.S.
financial woes are far from over. Top lender Mitsubishi UFJ Financial fell 1.8 percent after
the bank sweetened its bid for full control of California bank UnionBanCal Corp by 17 percent to $3.5 billion.

Seoul shares tumbled 1.68 percent with renewed economic and credit worries sending exporters and financials lower, while STX Group units fell across the board on concerns about the group's liquidity.

Australian shares fell 2.4 percent, with financial firms declining on concerns about the health of their global peers, while weak metals prices weighed down on the miners. Investment and advisory firm Babcock & Brown, tumbled 24 percent on market talk that its chief executive would resign following recent sharp fall in it share price.

Hong Kong shares fell 2.1 percent, weighed down by losses in property stocks ahead of key earnings, but power stocks rallied on hopes of another round of tariff increases in China after the Olympics. Property shares extended Monday's losses as investors locked in gains on real estate developers ahead of Cheung Kong Holdings' first-half earnings on Thursday. A lower contribution from sister company Hutchison Whampoa and limited property development profits should send Cheung Kong's net profit down about 67 percent to HK$6.1 billion, according to the forecasts of four analysts polled by Reuters.

Singapore's Straits Times Index dropped 1.7 percent, with selling across the board. Banks such as DBS Group, were leading the decline.

Gains in financial stocks helped the Shanghai Composite Index rise 1.1 percent, after a 5.3 percent plunge Monday. In one positive sign, China South Locomotive stayed firm after a sharp rise during Monday's debut. But turnover remained very thin and analysts said that given concern about slowing economic and corporate profit growth, the market risked resuming its downtrend after a consolidation period.