Reuters Asian stocks fall on swine flu, U.S. bank worries

HONG KONG (Reuters) - Asian stocks dropped for a second day on Tuesday and Japanese shares hit a one-month low, with investors fretting about the potential economic fallout if the swine virus outbreak becomes a full-fledged pandemic and the results of U.S. bank stress tests.

Futures on the S&P 500 slid 1.5 percent and sparked further selling across Asia after the Wall Street Journal said that U.S. regulators were pushing Bank of America (BAC.N) and Citigroup (C.N) to raise more capital after the initial results of the stress tests.

European stock futures were down between 1.4 percent and 1.8 percent before the start of trade.

More countries have reported cases of the flu, and some such as Australia and South Korea were testing for the virus. The World Health Organization raised its alert level to be a step closer to declaring the first flu pandemic in 40 years.

But so far the deaths have not spread beyond Mexico, where the outbreak began and 149 people have been killed.

Companies such as drugmakers and producers of face masks got a boost on an expected increase in demand, while airlines extended losses on worries the swine flu will cause a sharp reduction in travel around the world.

Japan's Chugai Pharmaceutical (4519.T), maker of influenza drug Tamiflu, rose 1.9 percent. Hong Kong's Cathay Pacific Airways (0293.HK) dropped 3 percent.

Market players cut back on holdings of riskier higher-yielding currencies and commodities for a second day, taking profits on winning bets since the beginning of March on hopes a global economic recovery was taking root.

"Active trade is limited as the market is trying to grasp how much swine flu could impact the global economy. We had finally begun to see a bottom for the global economy and that has been now ruined by pigs," said Tsuyoshi Segawa, equity strategist at Shinko Securities.

The MSCI index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 2.2 percent after the S&P 500 .SPX shed 1.1 percent on Monday.

The MSCI benchmark for Asia is still up about 28 percent from a five-year low hit in early March.

Japan's Nikkei average .N225 shed 2.7 percent, with disappointing earnings from shippers like Mitsui OSK Lines (9104.T) and steelmakers like Nippon Steel (5401.T) slamming the market. more...