Stocks, Grains, Peso Drop on Swine Flu; Treasuries, Yen Gain

By Daniel Hauck

April 27 (Bloomberg) -- Stocks declined around the world, while the yen, dollar and Treasuries gained as the swine flu outbreak spread. Mexico’s peso fell and grain prices retreated.

The Dow Jones Stoxx 600 Index of European shares dropped 1 percent, led by airlines on concern that the disease will reduce travel. Futures on the Standard & Poor’s 500 Index slipped 1.8 percent. The yen climbed more than 1 percent against the euro and the peso slid more than 3 percent against the dollar. Corn fell the most in a week on speculation the outbreak may curb demand for pork and animal-feed grains.

The spread of swine flu from Mexico to as far as New Zealand prompted concern of a pandemic, snuffing out a rebound in stocks that has pushed the MSCI World Index up 27 percent since March 9. Shares also fell and Treasuries rose after Lawrence Summers, director of the White House National Economic Council, said the U.S. economy will continue to contract “for some time to come,” in an interview on “Fox News Sunday.”

“As if we didn’t have enough to contend with,” Sydney- based Greg Gibbs and London-based Andy Chaytor, strategists at Royal Bank of Scotland Group Plc, wrote in a report today. “It’s just what we need now, a flu pandemic in the midst of the biggest financial crisis since the Great Depression.”

Yields on 10-year Treasury notes dropped five basis points to 2.95 percent. The yen strengthened to 126.94 per euro from 128.66 last week. The dollar advanced to $1.3151 per euro, from $1.3242.

Australian Dollar

The cost of protecting European corporate bonds increased for the first time in four days, with the Markit iTraxx Crossover Index of bonds with ratings below investment grade rising 17 basis points to 852, according to JPMorgan Chase & Co. prices at 9:15 a.m. in London. The Australian dollar fell 1.2 percent to 71.47 U.S. cents, and the New Zealand dollar dropped 1.2 percent to 56.59 cents.

The MSCI World Index slipped for the first time in five days, losing 0.7 percent. The gauge of 23 developed countries gained 5.3 percent since U.S. earnings season started as more than 67 percent of S&P 500 companies that reported first-quarter results beat estimates.

Analysts predict that U.S. profits will decline through September, dropping 34 percent in the first quarter and 33 percent in the second. Worldwide losses tied to bad loans and mortgages may reach $4.1 trillion by the end of 2010, the Washington-based International Monetary Fund said last week.

Airlines Retreat

Paris-based Air France KLM-Group fell 7.4 percent to 8.32 euros in Paris trading. Four people in France suspected of suffering from swine flu have tested negative for the virus, an official at the Health Ministry said today. London-based British Airways Plc tumbled 8.6 percent to 149.8 pence.

Credit-default swaps on Air France climbed 22 basis points to 439, while those on British Airways jumped 40 to 737, according to CMA Datavision prices in London.

American Airlines parent AMR Corp., based in Fort Worth, Texas, lost 7.6 percent to $5.01 in pre-market New York trading.

Beijing-based Air China Ltd., the country’s largest international carrier, slumped 13 percent to HK$3.49 in Hong Kong. Singapore Airlines Ltd., the world’s second-biggest carrier by market value, slipped 4.5 percent to S$10.12.

Nanjing-based China Yurun Food Group Ltd., the country’s biggest hog processor, sank 10 percent to HK$9.

Smithfield, Virginia-based Smithfield Foods Inc., the world’s largest pork processor, slipped 9.1 percent to $9.38 in pre-market New York trading. Springdale, Arkansas-based Tyson Foods Inc., the largest U.S.-based meat producer, retreated 11 percent to $9.75.

Roche, Chugai Gain

Basel, Switzerland-based Roche Holding AG, which said it has an ample supply of the Tamiflu treatment that can reduce swine flu symptoms, gained 3.9 percent to 145 Swiss francs. Chugai Pharmaceutical Co., the Tokyo-based unit of Roche, surged 14 percent to 1,845 yen.

NasVax Ltd. added 15 percent to 0.92 shekel in Tel Aviv trading. The Nes Ziona, Israel-based company develops vaccines for preventing several types of flu as well as alternative methods of administration such as a nasal spray. The shares surged as much as 150 percent before NasVax said in a statement to the Tel Aviv Stock Exchange that it has no plans at this stage to develop a vaccine for swine flu.

Mexico’s toll of flu-related deaths exceeded 100 and Spain reported its first case of swine influenza, prompting concern of a pandemic. Six people in Canada contracted swine flu and more cases are likely, government officials said. New Zealand said as many as 13 students who visited Mexico may have the disease.

‘Demand a Discount’

Australia, Japan, Singapore and South Korea are screening travelers for fever, while Hong Kong raised its swine-flu response level to “serious” from “alert.” Barack Obama’s administration declared a public health emergency after 20 people contracted the disease.

The Mexican peso dropped as much as 3.5 percent, the steepest intraday slide since Nov. 5, before trading at 13.72 per dollar. Mexican stocks were downgraded by UBS AG to “underweight” from “top pick” on concern the country’s economy will worsen.

“Investors should demand a discount for Mexican stocks due to the poor outlook for economic growth, which may be exacerbated by aggressive albeit sensible moves by the government to curb the recent outbreak of a lethal swine flu virus,” Zurich-based UBS said in a note today.

Corn for July delivery fell as much as 4.1 percent to $3.70 a bushel in electronic trading on the Chicago Board of Trade. Soybeans for July dropped as much as 5.7 percent to $9.7525 a bushel.

Industrial metals slid on speculation that the outbreak may curb efforts to revive the global economy. Copper for delivery in three months lost as much as 4.1 percent to $4,285 a metric tons on the London Metal Exchange. Nickel and zinc also declined. Crude oil for June delivery fell as much as 5.7 percent to $48.62 a barrel, on speculation swine flu will limit airline travel.