World markets in grip of swine flu fears (AP)

Tuesday, April 28th, 2009 | Finance News

LONDON – World stock markets fell sharply while the euro dropped below $1.30 Tuesday as investors worried that any swine flu pandemic could derail a global economic recovery after more countries confirmed new cases of the virus.

By early afternoon London time, the FTSE 100 of leading British shares was down 91.29 points, or 2.2 percent, at 4,075.72 while Germany's DAX fell 129.34 points, or 2.8 percent, to 4,564.73. The CAC-40 in France was down 65.15 points, or 2.1 percent, at 3,037.28.

The selling pressure was set to continue at the U.S. open, with Dow futures down 117 points, or 1.5 percent, to 7,885 while the broader Standard & Poor's 500 futures fell 15.3 points, or 1.8 percent, to 841.50.

The disease, which broke out in Mexico just days ago, has spread to other countries and testing of suspected cases was underway around the world.

Governments everywhere have toughened their precautions and the World Health Organization raised its alert level from three to four, which is just two steps short of it declaring a full pandemic and said it was now too late to contain the virus. The WHO also said it suspected that U.S. patients may have transmitted the virus to others in the United States.

Though all 150 suspected deaths and most of the 2,000 or infections have been seen in Mexico, investors around the world have decided to run for cover, abandoning riskier assets such as stocks and diving back into safe haven assets like the dollar and the yen.

"With the alert level for the virus raised by the World Health Organization, traders have had to re-evaluate just how serious this could end up being," said Tim Hughes, head of sales trading at IG Index.

Investors are concerned that, as in the SARS outbreak in 2003, affected areas and global trade could suffer as countries restrict bans of one sort or another.

"Exposed industries such as airlines and hotel operators have borne the brunt of the equity sell-off, but if fears escalate into wider global growth concerns, broad-based declines in global indices are possible," said Geoffrey Yu, an analyst at UBS.

For the second day running, airlines and travel-related companies felt the brunt of the selling pressure. In Europe, Air France-KLM and Deutsche Lufthansa AG fell another 2 percent while British Airways PLC slumped a further 4 percent. Aer Lingus fell 17 percent after issuing a profit warning.

And in a repeat of Monday, pharmaceutical stocks, particularly those with high-profile anti-flu vaccines — Switzerland's Roche Holding AG and GlaxoSmithkline PLC — benefited amid the pandemic fears.

A potential pandemic wasn't the only distraction for investors, already uneasy about the results of the U.S. government's stress tests to gauge the health of the largest 19 banks.

The reports are set for release Monday, though Bank of America Corp. and Citigroup Inc. have been told by regulators the two will likely need to raise more capital, according to a Wall Street Journal report. The report suggested that Bank of America's capital shortfall could run into billions of dollars, which, in the current environment would likely be extremely difficult to raise through the private sector.

Germany's Deutsche Bank AG was the worst-performing stock on the DAX, down over 5 percent, while in London Barclays PLC and HSBC Holding PLC fell around 4 percent. In Asia, Mizuho Financial Group slipped 2.0 percent in Tokyo.

Earlier, Asia's markets took a pummeling with Japan's Nikkei index closing down 232.57 points, or 2.7 percent, to 8,493.77 and Hong Kong's Hang Seng ended 285.31 points, or 1.9 percent, lower at 14,555.11.

Elsewhere in Asia, South Korea's Kospi retreated 3 percent to 1,300.24. Shanghai's main index was down 0.2 percent, Taiwan's stock measure dropped 1.9 percent while Australia's benchmark was down 0.6 percent.

Oil prices also fell foul of the swine flu concerns as investors worried about lower demand, with the June contract on the New York Mercantile Exchange down $1.28 at $48.86 a barrel. Prices shed $1.41 overnight to settle at $50.14.

In currencies, the dollar weakened to 95.59 yen from 96.37. Meanwhile, the euro continued to suffer and fell to $1.2987, having started the week above $1.3250 before investors rushed into the relative safe haven of the dollar.

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AP Business Writer Jeremiah Marquez in Hong Kong contributed to this report.

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