Stocks Drop on Swine Flu, Economy Concern; Treasuries, Yen Gain

By Sarah Jones

April 27 (Bloomberg) -- Stocks declined around the world, Treasuries gained and the yen strengthened as the swine influenza outbreak spread and Lawrence Summers said the U.S. economy will keep shrinking.

Air France-KLM Group, Europe’s largest airline, Autogrill SpA, the world’s biggest manager of airport restaurants, and Spain’s Banco Bilbao Vizcaya Argentaria SA dropped at least 4 percent after swine flu spread beyond Mexico to Spain and Canada and the U.S. government declared a public health emergency. Drugmakers Roche Holding AG and GlaxoSmithKline Plc advanced more than 3 percent on speculation demand for their flu treatments will increase.

The MSCI World Index dropped for the first time in five days, slipping 0.6 percent at 1:18 p.m. in London. The gauge of 23 developed countries has rebound 27 percent since March 9 as companies from American Express Co. and Ford Motor Co. to Italy’s Eni SpA posted earnings that beat analysts’ estimates.

The outbreak of swine flu “is clearly something that is undermining the market in the short term but I am not sure it’s going to de-rail the fact that the markets have their sights on a recovery ahead,” said Mike Lenhoff, who helps oversee about $36 billion as chief strategist at Brewin Dolphin Securities Ltd. in London. “It could be just an excuse for some consolidation today.”

‘Health Emergency’

Swine flu, a respiratory disease of pigs, has spread to Canada, Spain and five states in the U.S. and there are also suspected cases elsewhere in Europe and as far away as New Zealand. The World Health Organization has declared the outbreak a “public health emergency of international concern.”

Europe’s Dow Jones Stoxx 600 Index fell 1.3 percent, led by travel and leisure companies, while the MSCI Asia Pacific Index slid 0.4 percent, reversing an earlier advance of 1.4 percent.

Futures on the Standard & Poor’s 500 Index dropped 1.9 percent as Credit Suisse Group AG strategists reduced their recommendation on American stocks to “benchmark” from “overweight.” The U.S. economy will experience “sharp declines in employment for quite some time this year,” Summers, director of the White House National Economic Council, said yesterday on “Fox News Sunday.”

The yen rose against the dollar and Treasuries advanced as investors sought havens from a prolonged recession. The yen strengthened to 96.53 per dollar from 97.17 last week. Yields on 10-year Treasury notes fell five basis points to 2.95 percent, according to BG Cantor Market Data.

Peso Slips

The Mexican peso declined 2.8 percent to 13.7153 per dollar after more than 100 people died of flu-related causes in the nation. BBVA, which owns Mexico’s biggest bank, lost 4.3 percent to 7.72 euros. Sol Melia SA, which operates resorts in Mexico, slumped 12 percent to 3.70 euros.

Air France fell 7.5 percent to 8.31 euros. Four people in the country suspected of having swine flu have tested negative for the virus, an official at the French Health Ministry said today. Iberia Lineas Aereas de Espana SA, Spain’s biggest airline, lost 7.3 percent to 1.41 euros in Madrid trading while Autogrill declined 6.4 percent to 5.66 euros in Milan.

A growing number of swine flu cases led the U.S. government to release stockpiles of medicine. Japan, Malaysia and Singapore said they are screening passengers at checkpoints for fever, while Hong Kong raised its swine-flu response level.

Star Cruises Slides

Star Cruises Ltd., Asia’s biggest cruise operator, sank 7.9 percent to 93 Hong Kong cents, while Sichuan Gaojin Food Co., a Chinese maker of pork products, slumped 10 percent to 8.67 yuan in Shenzhen as the spread of swine flu raised concerns of a similar outbreak to the severe acute respiratory syndrome epidemic in 2003, which killed 774 people and infected 8,098 globally.

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

Roche, which said it has an ample supply of the Tamiflu treatment that can reduce the symptoms of swine flu, added 3.6 percent to 144.6 Swiss francs. Glaxo, which said it is producing its Relenza flu treatment at “full capacity,” climbed 3.6 percent to 1,042 pence. Nasvax Ltd., an Israeli developer of vaccines, surged 14 percent to 0.9 shekel in Tel Aviv.

Marine Harvest ASA, the world’s largest salmon farmer, jumped 6.9 percent to 2.94 kroner as investors bet the pig-flu outbreak will lift demand for fish. Smaller rival Cermaq ASA gained 3.2 percent to 39.2 kroner.

ArcelorMittal Falls

ArcelorMittal declined 4.3 percent to 19.73 euros after the Financial Times said the world’s biggest steelmaker may have to reduce its steel capacity on a long-term basis by as much as 10 percent. The newspaper citied Peter Fish, managing director of steel analysts Meps.

Siemens AG fell 3 percent to 47.81 euros after Europe’s largest engineering company said it will cut its annual profit target this week as the global recession decimated demand for factory machinery, a person familiar with the matter said.

Operating profit from Siemens’ industry, energy and health- care divisions will exceed last year’s 6.5 billion euros, yet fall short of a prior goal of 8 billion euros to 8.5 billion euros, said the person, who asked not to be named because the decision hasn’t yet been announced.

To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net.