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

* 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 .FTSE .GDAXI .FCHI 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. [ID:nN18494933]

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.