World stocks tumbled on Monday, after seven weeks of gains, and oil and the euro fell as concerns intensified the spread of swine flu, which has killed more than 100 people in Mexico, would hit the global economy.

Travel and leisure-related stocks tumbled while the Mexican peso fell 2 percent against the dollar as the World Health Organization warned the flu, which has spread to the United States and possibly as far as New Zealand, has the potential to cause a worldwide pandemic.

A nasty chill will run through the market with swine flu as people think back to the SARS virus, said Justin Urquhart Stewart, investment director at Seven Investment Management.

The threat of the pandemic will add further weakness to global trade -- we saw with SARS tangible percentage points knocked off the index and that was in a buoyant time. Put that in a weaker time and it is likely to be more unpleasant. MSCI world equity index <.MIWD00000PUS> fell 0.7 percent after rising 0.2 percent last week, posting seventh weeks of consecutive gains.

The FTSEurofirst 300 index <.FTEU3> dropped 1.3 percent while emerging stocks <.MSCIEF> lost 1.4 percent.

In Europe, travel and leisure sector stocks <.SXTP> fell 4.5 percent while airlines such as British Airways , Air France-KLM and Deutsche Lufthansa dropped up to 13 percent.

U.S. crude oil fell 4.1 percent to $49.45 a barrel.

The euro fell 0.7 percent to $1.3148, hit by a rise in risk aversion, while the dollar <.DXY> rose 0.6 percent against a basket of major currencies. The yen rose to 0.2 percent to 96.70 per dollar.

If the disease proves to be more fatal, the dollar would rally and cross-yen would come under pressure, BNP Paribas said in a note to clients.

Given the recent 'green shoots', the market would take any worsening of the outbreak as an obstruction to the global recovery process.

The Mexican peso fell as low as 13.69 per dollar, its lowest in almost three weeks.

The June Bund future rose 75 ticks, garnering safety-seeking flows.

Two-year euro zone government bond yields hit their lowest in almost one month of 1.303 percent after European Central Bank Governing Council member Nout Wellink was quoted as saying the central bank should discuss lowering interest rates below 1 percent.

(Additional reporting by Joanne Frearson, editing by Mike Peacock)

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