TREASURIES-Futures hit 4-mth high on financial sector concerns

* Futures hit 4-month high, aided by financial sector fears

* Ten-yr yield strikes 1-mth low on stock plunge, oil slide

* July housing starts expected to decrease from June

By Rika Otsuka

TOKYO, Aug 19 (Reuters) - U.S. Treasury futures hit a four-month high in Asia on Tuesday, as renewed concerns over the U.S. financial sector sparked a stock sell-off, prompting investors to shift their money to safe-haven government debt.

Yields on benchmark 10-year Treasuries and two-year notes both struck one-month lows as a fall in oil weakened expectations that the Federal Reserve would lift interest rates to fight inflation.

Treasuries climbed the previous day as U.S. stocks tumbled on uneasiness about the prospect of more losses from the mortgage crisis.

Fannie Mae (FNM.N) and Freddie Mac (FRE.N) each lost 18 percent on Monday after a report in the newspaper Barron's suggested that the U.S. Treasury may recapitalise the companies, a move that could wipe out shareholders.

"Talks of a possible rescue plan for Fannie Mae and Freddie Mac stay the biggest market mover," said Akihiro Nishida, senior economist at Mitsubishi UFJ Securities.

"Market participants are watching whether a more concrete plan of injecting public funds to the mortgage finance giants comes out," Nishida said.

Worries over the health of the U.S. government-sponsored mortgage firms has exacerbated concerns about growth in the United States and the rest of the world.

September T-note futures TYv1 rose 2/32 to 116-14.5/32, after hitting a four-month high of 116.16.5/32.

Benchmark 10-year Treasuries US10YT=RR traded 2/32 higher in price for a yield of 3.810 percent, down about 1 basis point from late U.S. trade. The 10-year yield briefly fell to 3.805 percent -- the lowest since July 15.

Two-year notes US2YT=RR dipped 1/32 in price to yield 2.321 percent, down from 2.342 percent. The two-year yield hit a one-month trough of 2.317 percent earlier in the day.

Tokyo's Nikkei share average .N225 plunged 2.7 percent.

U.S. crude slipped 0.6 percent to $112.25 a barrel CLc1, nearly 25 percent below a record high of $147.27 reached in July. [O/R]

For fresh clues about the U.S. housing market, investors will look to July data on housing construction and permits at 1230 GMT.

Weak figures reinforcing views that the housing sector's slump is far from over will fuel worries about a recession and more mortgage-related bank losses, a day after an industry report showed that home builder sentiment was stuck at a record low in August. [ID:nN18452752]

Analysts surveyed by Reuters expected housing starts to have slowed to an annualised 960,000 units last month from June's 1.066 million annualised rate. [ECI/US]

The market will also watch a report on July producer prices, although traders said the data is unlikely to have a major impact on the market, given oil's retreat from record highs.

(Editing by Jacqueline Wong)