Renewed fears about the health of the global economy spooked markets yesterday as risks rose that Mexican swine flu may become a pandemic and a newspaper report said US banks may need to raise fresh capital.

The Wall Street Journal said that after "stress tests," regulators had told Citigroup Inc and Bank of America Corp that they needed to raise billions of dollars.

The news came as markets were already factoring in a rise in the World Health Organization's pandemic alert to phase 4, indicating the risk of a deadly global outbreak.