By Catherine Bremer
MEXICO CITY (Reuters) - The new strain of swine flu virus that has killed 149 people in Mexico spread to more countries on Tuesday, raising the spectre of a pandemic and hurting financial markets and airline stocks.
The World Health Organisation has raised its alert level to indicate a significantly increased risk of pandemic, or global outbreak of serious illness, but is not recommending travel restriction and border closures.
But the United States and the European Union advised their citizens to avoid non-essential travel to Mexico, and companies adopted travel restrictions for their staff in response to a potential flu pandemic, which would be the first in 40 years.
Global markets slumped for a second day on Tuesday on fears the flu outbreak could snuff out fragile signs of economic recovery.
The flu outbreak came at a bad time for airlines, whose shares continued to fall on fears that the drop in traffic could be at least as bad as that of the 2003 SARS crisis.
The virus is not caught from eating pig meat products but several countries, led by Russia and China, banned U.S. pork imports. The EU said it has no plans to restrict trade with Mexico because of the flu outbreak.
Health officials confirmed cases in New Zealand and Israel on Tuesday. No one has died outside Mexico but there were also confirmed cases in the United States, Canada, Britain and Spain.
Possible cases were reported in Australia, France, Germany, Sweden, Norway and South Korea.
New Zealand said three of 11 people in a school group that visited Mexico had tested positive and it expected the others would also turn out to be positive when tests were completed.
The Israeli carrier, a 26-year-old man, had also recently returned from Mexico.
A honeymooning Scottish couple who recently returned from Cancun, one of Mexico's biggest beach resorts, were the first people in Britain to test positive for swine flu.
One of the mysteries of the current outbreak is why all cases outside Mexico have so far been relatively mild.
The Geneva-based WHO said the flu was being spread by human-to-human transmission but it did not advise any travel restrictions or border closures.
STOCKS FALL
European and Asian stock markets retreated, with airline stocks taking another hit and drug makers posting gains. Investors cut their exposure to riskier currencies.
Oil dropped 2 percent, sinking below $50 a barrel.
"Markets are doing what they tend to do, taking fright," said Howard Wheeldon, strategist at BGC Partners in London. "But in my view, it's totally unnecessary."
Britain, France, Germany and the United States issued travel alerts for Mexico, which relies on tourism as a main source of foreign currency. Japan advised its citizens in Mexico to consider returning home soon.
U.K. travel firms Thomson Holidays and First Choice said they had decided to repatriate their customers from Mexico and to cancel flights bound for Cancun on Tuesday. British Airways said it would continue to operate its services.
China promised to disclose any cases promptly. State-run newspapers urged officials to be open and avoid the kind of cover-up that brought panic during the SARS epidemic in 2003.
Asian companies stepped up precautions, restricting travel and advising staff on how to protect themselves.
Experts say that while it is impossible to stop the spread of the disease, efforts to slow its progress could buy crucial time for countries to procure essential drugs.
The last flu pandemic, in 1968, killed about one million people around the world.
MEXICO HUNKERS DOWN
In Mexico, epicentre of the latest outbreak, people from company directors to couriers wore face masks while airlines checked passengers for flu symptoms.
"We will defeat this threat," Mexico City Mayor Marcelo Ebrard said as several hundred people suspected to be suffering from the flu were treated in hospitals and life in the normally hectic capital took on an eerie hush.
Mexico City shut restaurants, bars, cinemas, stadiums and some government offices to stop the infection from spreading.
Unsure how worried they should be, people stocked up on food, drinking water, rental movies and surgical masks. Some opted to work from home. Schools were closed until May 6.
Facing damage to tourism and trade -- motors of an economy that is already tipping into recession from the global downturn -- Mexico said it would not order a mass closure of businesses.
"Economic activity must continue," Labour Minister Javier Lozano told a news conference.
Worldwide, seasonal flu kills between 250,000 and 500,000 people in an average year. The new strain is worrying as it spreads rapidly between humans and there is no vaccine for it.
Most of the deaths have been people aged between 20 and 50, an ominous sign because a hallmark of past pandemics has been the high death rate among young adults.
Mexican media have speculated the flu may have originated at a pig farm in the southeastern state of Veracruz.
But Health Minister Jose Angel Cordova said the first case that alerted authorities to a possible rogue flu strain was in the southern state of Oaxaca. It was too early to identify the cause or geographical source of the virus.
(Additional reporting by Jonathan Lynn and Stephanie Nebehay in Geneva; Maggie Fox in Washington; Helen Popper, Robin Emmott and Mica Rosenberg in Mexico City; Tan Ee Lyn in Hong Kong; and Lincoln Feast in Singapore; Writing by Andrew Marshall; Editing by Anthony Boadle and Frances Kerry)
