January 23, 2020 / 9:31 AM / a month ago

GLOBAL MARKETS-Virus fears keep stocks red; ECB gets ready to rethink

* Risk assets slump in Asia, led by losses in Chinese stocks

* Worries about China virus grow before Lunar New Year

* Oil drops on threat from virus, rise in supply

* European stocks fall, ECB policy review in focus

By Marc Jones

LONDON, Jan 23 (Reuters) - World shares fell on Thursday, led by the biggest decline in Chinese stocks in more than eight months, as concern mounted about the spread of a deadly virus in China.

With millions of Chinese preparing to travel for the Lunar New Year, the potential the disease to spread, along with the tendency of traders to reduce their exposure before holidays, left markets struggling.

Safe options like Japan's yen and government bonds rose, while European stocks followed Asia lower. The threat to airline travel and an increase in supply pushed oil prices to seven-week lows.

"Ultimately, the coronavirus is a slow-burning but important story for markets that is likely to last for months rather than just a few days," said TD Securities' European head of currency strategy, Ned Rumpeltin. "And the natural go-to currencies when there are headlines like these are the yen and the Swiss franc."

The Swiss franc rose to a near three-year high against the euro overnight, but it was trading little changed as the focus in Europe turned to its central banks.

Norway's central bank had already left its interest rates unchanged. The European Central Bank holds its first meeting of the year later on Thursday, where it's expected to outline its first formal policy review in 17 years.

It will probably last for most of the year and span topics from the inflation target to digital money and the fight against climate change.

"Quite a lot has happened in the last 17 years," Rumpeltin said. "They are due for a rethink."

WUHAN BAN

As the virus took hold, MSCI's broadest index of Asia-Pacific shares outside Japan fell 1.07%. Chinese shares dropped 3.1%, the biggest daily decline since May, when U.S. President Donald Trump's threats of additional tariffs on Chinese goods rocked financial markets.

Hong Kong shares ended down 1.5% and Japan's Nikkei index slid 1%.

Among major currencies, the Chinese yuan fell to a two-week low, on course for its worst week since August. The Japanese yen climbed 0.2% to secure a third day of gains.

Gold and U.S. Treasuries also rose as China blocked travel to and from Wuhan, the city where the coronavirus outbreak originated. Gold later recovered in Europe.

Deaths in China from the coronavirus rose to 17 on Wednesday, with nearly 600 cases confirmed. The outbreak has evoked memories of Severe Acute Respiratory Syndrome (SARS) in 2002-2003, another coronavirus that broke out in China and killed nearly 800 people worldwide.

"The coronavirus has introduced some caution," said Michael McCarthy, chief market strategist at CMC Markets in Sydney. "There is no reason to expect a global pandemic now, but there is some repricing in financial markets." (Reporting by Marc Jones, editing by Larry King)

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