Asian stocks slipped for a second day on Tuesday on worries about the potential economic fallout from the swine virus outbreak, even as investor reaction remained limited due to uncertainty about the full impact.

More countries have reported cases of the flu, and countries 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 were 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 4.3 percent. Hong Kong's Cathay Pacific Airways <0293.HK> dropped 2.3 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 that 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 0.9 percent, broadly in line with U.S. shares after the S&P 500 <.SPX> shed 1.1 percent on Monday.

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

AUSSIE AND KIWI EXTEND SLIDE

The Australian and New Zealand dollars -- still among the highest-yielding of major currencies -- hit one-month lows against the yen as investors cut back on traditional plays favoring carry trades that were in vogue as stocks rallied.

The Aussie was down 1.1 percent against the yen at 67.77 yen and shed 0.8 percent against the dollar to $0.7034.

Between early February and mid April, the Aussie had surged more than 30 percent against the yen as carry trades -- using low-yielding currencies as a cheap source of funds to buy higher-yielding currencies -- came back into favor.

The Aussie's correlation has been strengthening against key stock markets over the past few weeks, suggesting that investors have been cutting positions at the same time across markets.

The dollar edged up slightly as investors favored the U.S. currency as a haven while shedding holdings of riskier assets.

The dollar index, a gauge of its performance against six major currencies, inched up 0.1 percent to 85.725 after having jumped 1.1 percent on Monday -- the biggest daily gain in a month.

The dollar's gains pushed gold prices lower and triggered stop-loss selling of bullion, traders said. Gold was down $7.20 an ounce at $899.55. U.S. crude oil shed 56 cents to $49.58.

Government bonds were mixed. Japanese government bond futures rose 0.26 point, while U.S. Treasuries slipped. Benchmark 10-year Treasury notes were down 4/32 in price to yield 2.923 percent, up a basis point from late U.S. trade.

(Additional reporting by Aiko Hayashi in Tokyo; Editing by Jan Dahinten)

Fall