Swine flu fears dominate world markets

[April 28, 2009]  LONDON (AP) -- World stock markets fell Tuesday as investors worried that any swine flu pandemic could derail a global economic recovery as the World Health Organization said it was now too late to contain the virus and urged countries to do what they can to mitigate the effects.

In morning trading London time, the FTSE 100 of leading British shares was down 84.75 points, or 2 percent, at 4,082.26 while Germany's DAX fell 119.11 points, or 2.5 percent, to 4,574.96. The CAC-40 in France was down 69.32 points, or 2.2 percent, at 3,033.22.

The disease, which broke out in Mexico just days ago, has spread to Europe 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.

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.

"Equity markets have continued to sell off amid worries that the spread of the virus will undermine hopes of an economic recovery later this year," said Stuart Bennett, an analyst at Calyon Credit Agricole.

"Until further details are available with regard to the spread of the virus and its threat, concerns will remain at the forefront signaling that risk aversion will remain elevated," he added.

With all the uncertainty gripping the markets, Wall Street futures were pointing to a sharply lower opening. Dow futures were down 103 points, or 1.3 percent, at 7,899 while the broader Standard & Poor's 500 futures fell 13.70 points, or 1.6 percent, to 843.10.

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.

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 3 percent while British Airways PLC slumped a further 6 percent.

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.

"Banks requiring capital will either need to consider further government support or to sell non-core assets. Financial stocks are likely to underperform in this environment," said Hans Redeker, an analyst at BNP Paribas.

Germany's Deutsche Bank AG was the worst-performing stock on the DAX, down over 4 percent, while in London Barclays PLC dropped over 4 percent and HSBC Holding PLC was down more than 3 percent. In Asia, Mizuho Financial Group slipped 2.0 percent in Tokyo.

On Monday, the Dow Jones industrial average suffered its first drop in three days, falling 51.29, or 0.6 percent, to 8,025.00, while the S&P 500 closed 8.72 points, or 1 percent, to 857.51.

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 $1.39 at $48.75 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 was just above $1.30, having started the week above $1.3250 before investors rushed into the relative safe haven of the dollar.

[Associated Press; By PAN PYLAS]

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

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