* Wall Street falls on fears flu may become pandemic
* Bond prices rise as flu jitters spur safety bid
* US dollar, yen gain as flu fears stoke risk aversion
* Oil falls but stays above $50 a barrel on economy fears
(Adds close of U.S. markets)
By Herbert Lash
NEW YORK, April 27 (Reuters) - Oil and global stock prices
fell while safe-havens like the U.S. dollar and government debt
rose on Monday on fears a deadly flu outbreak in Mexico could
become a pandemic and prolong a worldwide recession.
The threat of a pandemic triggered by a new flu strain that
has killed up to 149 people in Mexico sent shares of drugmakers
higher from Asia to Europe to the United States.
The U.S. dollar and yen gained broadly while U.S. Treasury
debt prices rose as worries about the flu outbreak prompted
investors to seek shelter in the safety of both currencies.
Concerns that the virus represents a new obstacle to
economic recovery pushed stock prices lower when markets opened
in Asia but European shares rebounded to close higher on the
view fears of a pandemic were overdone.
U.S. stocks closed down after briefly turning positive at
midday on renewed jitters that the virus could spread beyond
Mexico. Oil stocks led the Dow lower and the AMEX Airline index
<.XAL> fell 10.6 percent.
"The news has the potential to reduce travel, tourism,
trade, and to keep the consumers away from the malls," said
Andrew Wilkinson, senior market analyst at options market maker
Interactive Brokers in Greenwich, Connecticut.
However, Wilkinson said, "I don't expect this to have a
very long life."
The Dow Jones industrial average <> closed down 51.29
points, or 0.64 percent, at 8,025.00. The Standard & Poor's 500
Index <.SPX> fell 8.72 points, or 1.01 percent, at 857.51. The
Nasdaq Composite Index <> fell 14.88 points, or 0.88
percent, at 1,679.41.
Chevron Corp <CVX.N> fell 1.79 percent and Exxon Mobil Corp
<XOM.N> shed 0.66 percent.
Investors have turned cautious in the past few days while
they await the results of the U.S. administration's bank stress
tests and ahead of a two-day Federal Reserve meeting ending on
Wednesday. So the flu outbreak added to investor worries.
"The market looks for things to worry about, particularly
when you are up nearly 30 percent from the bottom," said Warren
Simpson, managing director at Stephens Capital Management in
Little Rock, Arkansas.
Stocks of drugmakers benefited from the pandemic threat,
with the Merrill Lynch Biotech Holders ETF <BBH.P> rising 2.1
percent and Gilead Sciences <GILD.O> gaining 3.8 percent.
In Europe, GlaxoSmithKline <GSK.L> rose 5.7 percent,
AstraZeneca <AZN.L> rose 3.7 percent and Roche <ROG.VX> added
3.5 percent.
The FTSEurofirst 300 <> index of top European shares
closed up 0.4 percent at 813.69.
Crude oil ended lower but prices pulled back from losses of
almost 7.0 percent as fears eased about a potential pandemic.
U.S. oil futures <CLc1> dropped $1.41 to settle at $50.14 a
barrel, off an earlier low of $48.01. London Brent crude
<LCOc1> fell $1.39 to $50.28 a barrel.
Government debt prices also retreated but later rose as
U.S. stocks slipped following a brief march into positive
territory.
The benchmark 10-year U.S. Treasury note <US10YT=RR> rose
18/32 to yield 2.92 percent. The 2-year U.S. Treasury note
<US2YT=RR> gained 4/32 in price to yield 0.89 percent.
The dollar rose against a basket of major currencies, with
the U.S. Dollar Index <.DXY> up 1.12 percent at 85.665.
The euro <EUR=> fell 1.68 percent at $1.303. Against the
yen, the dollar <JPY=> fell 0.38 percent at 96.78.
Gold edged lower as the dollar strengthened, but losses
were capped as fears of a flu pandemic helped underpin gold's
appeal as a hedge against risk.
U.S. gold futures for June delivery <GCM9> settled down
$5.90 at $908.20 in New York.
(Reporting by Chuck Mikolajczak, Ellen Freilich and Nick
Olivari in New York and by Ian Chua, Atul Prakash, Jane
Merriman and Jan Harvey in London; Writing by Herbert Lash;
Editing by James Dalgleish)
