European stocks fell Monday as fears over the impact of a possible swine flu pandemic on an already weak global economy boosted demand for traditional safe-haven assets.
The pan-European DJ Stoxx 600 Index was down 1.6% at 192.64. London's FTSE 100 Index was 1.2% lower at 4105.33, Frankfurt's DAX Index was down 1.8% at 4588.19, and the CAC-40 index in Paris was 1.7% lower at 3049.56.
"If swine flu morphs into a pandemic, it's the last thing the world economy needs, as it's already on its knees," said economist Kenneth Broux at Lloyds Banking.
During times of global flu pandemics, three trends take place: equity markets fall, the dollar strengthens, and there's a flight to quality, he said.
Early Monday, currency traders were already scurrying to safe havens as the outbreak of swine flu knocked the market's confidence. The yen and the dollar climbed.
Unlike avian flu and Severe Acute Respiratory Syndrome (SARS) which affected mostly Asia, swine flu has been seen in mostly Western economies. "These are the economies that have been feeding stimulus in order to jump start growth. Certainly, a pandemic would dampen that stimulus," Mr. Broux said.
The outbreak of swine flu in Mexico, the U.S. and Canada could have an impact on meat and feed demand. Already, three countries -- China, Thailand and the Philippines -- have banned the import of pork products or live swine from Mexico and the U.S., and more could follow their lead. The fear of an epidemic could hurt consumption, and indirectly hit the demand for agricultural products, such as grains and feedmeal.
However, the European pharmaceutical sector got a boost, on expectations of increased demand of vaccines. Switzerland's Roche AG said it stands ready to deliver 3 million doses of flu treatment Tamiflu, which has proven effective in treating swine flu. The U.K.'s GlaxoSmithKline PLC has also been contacted by the WHO regarding its Relenza treatment, another antiviral drug. In addition, Novartis AG and Sanofi-Aventis SA also have pandemic flu vaccines which were used in treating bird flu and are likely to help treat swine flu.
Roche shares rose 3.9%, GlaxoSmithKline added 2.9% and Sanofi-Aventis gained 0.7%.
"It's worth noting that governments will buy pandemic vaccines even if not approved [by regulatory panels] in order to meet the crisis needs," said Gbola Amusa, pharmaceuticals analyst at UBS.
European travel and leisure companies came under pressure amid rising concerns about the flu outbreak. Air France-KLM shares slumped 7.6%, British Airways fell 7.9%, Carnival lost 6.9% and Accor traded 6.3% lower.
Elsewhere, Asian markets closed mostly lower, with Hong Kong's Hang Seng Index down 2.3%. Japan's Nikkei 225 index closed up 0.2%, helped by strong gains from Chugai Pharmaceuticals.
The weekend outbreak of swine flu has prompted currency players to buy the safe-haven yen. The U.S. dollar traded at 96.65 yen from 97.17 yen late in New York on Friday, while the euro was at 127.22 yen from 128.79 yen Friday in New York. The single currency was also at $1.3155, from $1.3257.
Spot gold showed strength, trading at $915.60 a troy ounce, while the front month Nymex crude oil futures contract was down over $2 on Globex at $49.43 a barrel.
The desire for safe haven trading upon the flu news prompted gains in the sovereign debt market. The June gilt contract stood 0.49 higher at 121.15, with the June bunds contract up 0.59 at 123.05.
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