The disease, which broke out in Mexico just days ago, has spread to Europe and testing of suspected cases was underway in Asian countries, including South Korea and New Zealand. As governments everywhere toughened their precautions, the World Health Organization raised its global alert level in a move that could lead to more trade and travel restrictions.

While the disease has been relatively contained so far — with all 150 suspected deaths and most of the some 2,000 infections in Mexico — investors seemed loath to take on more risk and pocketed gains from the market’s recent rally. Drug makers jumped while airlines and other travel-industry companies took another hit.

"Sentiment has improved a lot since March, but it’s still in a fragile state at this point," said Kelvin Lau, regional economist at Standard Chartered in Hong Kong. "Many people are still pessimistic, and given the swine flu, sentiment could see another dip."

A potential pandemic wasn’t the only distraction for investors, already uneasy about the results of the U.S. government’s stress tests to gauge the health of the largest 19 banks.

The reports are set for release Monday, though Bank of America and Citigroup have been told by regulators the two will likely need to raise more capital, according to a Wall Street Journal report.

"The report sparked fresh worry over the U.S. financial sector," said Yutaka Miura, senior strategist at Shinko Securities Co. Ltd. in Tokyo.

Financial stocks lost ground amid the renewed banking worries. Mizuho Financial Group slipped 2.0 percent in Tokyo trade and HSBC retreated 2.5 percent in Hong Kong.

After wavering early on, most Asian markets trended lower.

Japan’s Nikkei 225 stock average, also undermined by a strengthening yen, lost 232.57 points, or 2.7 percent, to 8,493.77 and Hong Kong’s Hang Seng shed 269.38 points, or 1.8 percent, to 14,571.04.

Elsewhere, South Korea’s Kospi retreated 3 percent to 1,300.24. Shanghai’s main index was down 0.2 percent, Taiwan’s stock measure dropped 1.9 percent and India’s Sensex slipped 1.6 percent. Australia’s benchmark was down 0.6 percent.

In Tokyo trade, Japan’s No. 2 automaker fell 2.4 percent. After the market closed it announced a net loss of 186.16 billion yen ($1.9 billion) for the January-March quarter, more evidence of the global recession’s toll on major companies.

Airlines lost altitude for a second day amid concerns the spread of swine flu will dent travel, already reeling from the economic slump. Qantas Airways fell 1.1 percent in Sydney and Hong Kong’s Cathay Pacific Airways shed 1.4 percent.

Overnight on Wall Street, trade was cautious.

The Dow Jones suffered its first drop in three days, falling 51.29, or 0.6 percent, to 8,025.00. Broader stock indicators also closed lower. The Standard & Poor’s 500 index fell 8.72, or 1 percent, to 857.51.

U.S. markets were headed for more losses after Wall Street futures dropped sharply. Dow futures fell 102 points, or 1.3 percent, to 7,900 and S&P 500 futures lost 14.4, or 1.7 percent, to 842.40. Oil traders, also mulling the fallout from swine flu, sent crude prices lower, with the June contract falling $1.15 to $48.99. Prices shed $1.41 overnight to settle at $50.14.