Swine flu fears grip global stocks

HONG KONG — World stock markets tumbled yesterday as uncertainty over the economic toll of swine flu continued to mount and new doubts emerged about the health of US banks.

The disease, which broke out in Mexico just days ago, has spread to Europe and testing of suspected cases was underway in Asian countries, including South Korea and New Zealand. As governments everywhere toughened their precautions, the World Health Organization (WHO) raised its global alert level in a move that could lead to more trade and travel restrictions.

While the disease has been relatively contained so far – with all 150 suspected deaths and most of the some 2,000 infections in Mexico – investors seemed loath to take on more risk and pocketed gains from the market’s recent rally. Drug makers jumped while airlines and other travel-industry companies took another hit.

“Sentiment has improved a lot since March, but it’s still in a fragile state at this point,” said Kelvin Lau, regional economist at Standard Chartered in Hong Kong. “Many people are still pessimistic, and given the swine flu, sentiment could see another dip.”

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

The reports are set for release Monday, though Bank of America and Citigroup have been told by regulators the two will likely need to raise more capital, according to a Wall Street Journal report.

As trading got underway in Europe, major benchmarks were sharply lower. Britain’s FTSE 100 was down 2.1 percent, France’s CAC 40 slipped 2.6 percent and Germany’s DAX also shed 2.6 percent. US markets were headed for more losses after Wall Street futures dropped sharply. Dow futures fell 112 points, or 1.4 percent, to 7,890 and S&P 500 futures lost 15.8, or 1.8 percent, to 841.

Earlier in Asia, most markets sank.

Japan’s Nikkei 225 stock average, also undermined by a strengthening yen, lost 232.57 points, or 2.7 percent, to 8,493.77 and Hong Kong’s Hang Seng shed 285.31 points, or 1.9 percent, to 14,555.11.

Elsewhere, 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 and India’s Sensex slipped 2.1 percent. Australia’s benchmark was down 0.6 percent. — AP