ASIAN stocks fell yesterday, driving the region's benchmark index to a two-year low, on renewed concern credit-market turmoil will hurt profits at financial companies and curtail economic growth.

Banks dropped, led by a 2.7-percent decline in Commonwealth Bank of Australia, on speculation the United States government will bail out Freddie Mac and Fannie Mae. T&D Holdings Inc, Japan's largest publicly traded life insurer, led the Nikkei 225 Stock Average to its biggest drop in six weeks. Virgin Blue Holdings Ltd slid a record 28 percent in Sydney after earnings tumbled on fuel costs.

"Investors are so scared," said Masaru Hamasaki, a senior strategist in Tokyo at Toyota Asset Management Co, which manages US$3.3 billion. "What lies underneath today's (Tuesday) decline is investors' concerns about the prospects for the global economy. Anything related to financial companies is taken negatively."

The MSCI Asia Pacific Index lost 1.9 percent to 122.73 as of 4:09pm in Tokyo, set for the lowest close since July 26, 2006. Financial firms were the biggest drag, accounting for 30 percent of the benchmark index's retreat, Bloomberg News said.

The measure has slumped 22 percent so far this year as soaring inflation hurt global economies and the world's largest financial companies posted writedowns and credit losses of more than US$500 billion. The Bank of Japan yesterday said it became more pessimistic about the outlook for the economy and kept interest rates at the lowest level among industrial nations.

Japan's Nikkei 225 Stock Average slipped 2.3 percent to 12,865.05, its largest drop since July 8. Indexes fell in most other Asian markets.

Don Quijote Inc, a Japanese discount-store operator, tumbled after forecasting earnings that missed analyst estimates. OneSteel Ltd jumped in Sydney trading after the company posted higher profit.