NEW YORK/BERLIN–Chrysler won interim approval from a U.S. bankruptcy court to access a $4.5 billion loan as it tried to move ahead in its planned alliance with Fiat SpA, while the Italian automaker advanced its bid for General Motors Corp’s European Opel brand.

Also, a group of investment funds sought on Monday to block Chrysler’s plans with Fiat while United Auto Workers President Ron Gettelfinger said a union-aligned healthcare trust would work quickly to sell shares it would receive in a new Chrysler as soon as it in a position to do so.

The UAW healthcare trust, which is likely to receive a 55% stake in a new Chrysler under a sale plan the automaker filed with the U.S. Bankruptcy Court, would be very stressed initially through its acceptance of Chrysler equity for part of the funding of the trust.

A bankruptcy judge approved Chrysler’s request to access the funds from U.S. and Canadian governments, known as debtor-in-possession financing, as well as requests for the company to pay essential suppliers, dealers and its taxes.

Chrysler also had asked the U.S. Bankruptcy Court on Monday for a swift hearing into its planned sale of its best assets into a new company owned by its union, Fiat and the government, eliciting immediate objections from some dissenting secured lenders.

The dissenting lenders led by Oppenheimer Funds and Stairway Capital argued in a New York bankruptcy court that the sale proposal was “orchestrated entirely by the U.S. Treasury and foisted upon the debtors.”

A lawyer for the group, Tom Lauria, said some identified publicly in the politically charged reorganization have received death threats “which they perceive as being bona fide.” Those lenders have notified police and the FBI, he said.

President Barack Obama called the dissenters “speculators” in public criticism last week for refusing to join Chrysler’s biggest banks in a government-brokered deal to wipe out Chrysler’s $6.9 billion debt and move forward with the Fiat alliance.

Chrysler asked U.S. Judge Arthur Gonzalez to schedule a hearing as soon as May 21 to approve a $2 billion sale of most of the automaker’s assets. The judge adjourned a hearing on the request until 2:30 p.m. EDT (1830 GMT) on Tuesday.

“Absent a prompt sale, approved in the coming weeks, the value of the debtors’ assets will rapidly decline and the ability to achieve a going concern sale will be lost,” Chrysler said in court documents supporting the sale to Fiat.

Chrysler’s bankruptcy, one of the biggest U.S. company bankruptcies ever, is widely seen as almost a dry run for a potential reorganization of GM.

The No.1 U.S.-based automaker, which like Chrysler is surviving on government bailout money, faces its own restructuring deadlines on June 1 and is trying to restructure its business in the U.S. and overseas.

This includes the potential sale of its German-based Opel unit, possibly to Fiat.

But Fiat’s interest in the brand has a rival. Canadian parts maker Magna International Inc confirmed it was in talks with GM and the German government about taking a minority stake in Opel.

OPEL TAKES CENTERSTAGE

Fiat Chief Executive Sergio Marchionne wants the Italian automaker to be merge with Opel, then spin off and list the merged entity.

Combining with Chrysler as well as Opel, which makes up 80% of GM Europe’s annual sales of $34.4 billion, fits Marchionne’s strategy of bulking up Fiat to survive the crisis engulfing the auto industry.

“Industrial logic-wise, Opel makes a lot more sense than Chrysler. The big hurdle we can see is social cost,” Nomura International analyst Michael Tyndall said.

“It’s all very well to say they compete broadly in the same markets with similar platforms and there may be economies of scale. But the broad translation of economies of scale is fewer jobs and I’m not sure if the Italian or German governments have the appetite for the job losses a merger would entail.”

The biggest opposition to a deal is likely to come from German and Italian unions.

Opel employs around 25,000 people at its factories in Germany.

Germany’s finance minister, Karl-Theodor zu Guttenberg, said Fiat’s plan was “interesting,” but needed a closer look following talks with Marchionne. Guttenberg said Fiat was seeking Europe-wide state guarantees as part of the GM Europe deal.

In fresh reminders of the dire state of the global auto industry, French new passenger car sales fell 7% in April and Belgium reported a 22.8% drop.

Spanish automaker association Anfac said car sales in the country fell 45.6% in April, declining faster year-on- year than in March, which saw a 38.7% drop.

Kraft Foods Inc (KFT: 25.7414, 1.4914, 6.15%) posted a higher-than-expected first-quarter profit helped by price increases and cost-cutting measures.

The largest North American food company on Tuesday also stood by its 2009 earnings and revenue forecasts.

In recent years, Kraft has cut production costs while also increasing advertising and product development to help it garner higher prices and fend off competition from lower-priced private-label competitors.

The maker of Oreo cookies, Maxwell House coffee and a host of other well-known products said profit was $662 million, or 45 cents a share, compared with $601 million, or 39 cents a share, a year earlier.

Analysts on average forecast 40 cents a share, according to Reuters Estimates.

Sales fell 6.5% to $9.40 billion, hurt by the impact of the stronger dollar, which lessens the dollar-value of sales made overseas. A shift in the Easter holiday to April from March this year also cut into first-quarter sales.

“Organic revenue,” a measure of sales that excludes currency fluctuations, acquisitions and divestitures, rose 2.3%.”

Kraft, like most food companies, has raised prices the last few years to offset higher commodity costs. But those price increases have pressured volume as some consumers turn lower-priced options.

For the year, Kraft stood by its forecast calling for earnings per share of $1.88 and organic revenue growth of about 3%.

Kraft shares were at $25.06 in premarket trading, up 3.3 percent from Monday’s New York Stock Exchange close of $24.26.

Stocks fell slightly at Tuesday’s opening bell as the bulls take a breather from Monday’s big day and Wall Street braces for a report on the U.S. service sector and testimony from Fed chief Ben Bernanke.

Today’s Markets

As of 9:32 a.m. EDT, the Dow Jones Industrial Average slid 21.27 points, or 0.25%, to 8406.87, the S&P 500 fell 3.10 points, or 0.34%, to 904.14 and the Nasdaq Composite lost 8.73 points, or 0.50%, to 1754.83. The consumer-friendly FOX 50 sank 1.08 points, or 0.16%, to 664.17.

Aside from the imminent economic headlines, the markets were moved by a report that 10 major banks need to raise cash and better-than-expected earnings from Kraft (KFT).

The early slide on Wall Street comes after the Dow soared more than 200 points and the S&P 500 turned positive year-to-date on Monday. The broad S&P 500 has surged 34% since hitting a 12-year low in early March amid glimmers of hope for the struggling U.S. economy.

Traders will be looking for yet more signs of hope on Monday. The Institute for Supply Management’s service sector index, due out at 10 a.m. EDT, is expected to improve to a reading of 42.2, up from 40.8.

Also, Bernanke, the chairman of the Federal Reserve, could strike an optimistic tone when he testifies on Capitol Hill about the state of the economy.

Meanwhile, the markets continue to take the latest news about the government’s stress tests in stride. The U.S. is expected to tell 10 of the 19 banks undergoing the tests to boost their capital in an effort to ease solvency fears, The Wall Street Journal reported. The number of banks needing to raise cash remains in flux but it’s expected to include Bank of America (BAC), Wells Fargo (WFC) and Citigroup (C), the paper reported.

While the final results are set to be released to the individual banks on Tuesday, the public won’t be privy to the information until Thursday afternoon. None of the banks will be allowed to “fail” the tests, which are designed to see how much cash banks need to withstand a weakening of the economy and shore up confidence in the most troubled sector of the economy.

Tuesday’s earnings news was headlined by Kraft (KFT), the food giant and most recent addition to the Dow, which beat the Street with a first-quarter profit of 45 cents per share. While the company’s revenue fell by a worse-than-expected 6.5%, it reaffirmed its 2009 forecasts.

In the commodity markets, crude oil joined the S&P 500 and Nasdaq by briefly turning positive year-to-date before losing steam. Crude was recently down 18 cents per barrel, or 0.33%, to $54.29

Corporate Movers

Yahoo! (YHOO) and Microsoft (MSFT) are coming closer to a search-and-advertising partnership deal, All Things Digital, the Journal’s tech blog, reported. The deal being talked about, which could be struck within weeks, would include Yahoo taking over both search and display ad sales and Microsoft running the tech for both, the blog reported

Citigroup (C) is considering putting more workers on commission or offering larger base salaries as the bank tries to keep key employees without breaking new government bonus restrictions, Reuters reported. Other possibilities include offering stock-based bonuses or a percentage of their group’s sales, the wire service reported.

New York Times Co. (NYT) and the Boston Globe union are nearing a deal that would prevent having to close New England’s largest daily paper, the Journal reported. Also, the union of the company’s flagship paper signed off on a 5% pay reduction in an effort to save 80 jobs.

General Motors’ (GM) Saturn brand has drawn interest from Roger Penske, owner of the second-largest U.S. auto retailer, the Journal reported. GM has said it has received interest from “a number” of suitors for the brand, which it is trying to unload to avoid a Chapter 11 filing.

GMAC LLC’s first-quarter loss rose by 15% to $675 million as auto financing slid 13% and its mortgage unit posted its 10th-straight losing quarter.

Eli Lilly (LLY) and Amylin Pharmaceuticals (AMLN) said they are seeking FDA approval for a new form of their Byetta diabetes treatment that is taken once a week, down from the current drug’s twice daily frequency.

Marvel Entertainment (MVL) widely exceeded estimates with a quarterly profit of 57 cents per share. The comic book publisher also upped the lower end of its 2009 earnings guidance.

Legg Mason (LM) disclosed its fifth-straight quarterly loss and slashed its dividend to 3 cents per share. However, the investment advisory firm’s loss of $2.29 per share topped the Street’s view and its revenue slid by a better-than-expected 42%.

CVS (CVS) beat the Street by reporting a first-quarter profit of 51 cents per share. The drugstore company’s revenue jumped 9.7%.

Global Markets

European markets were mixed following Monday’s rally as London’s FTSE 100 jumped 2.71% to 4358.33 but France’s CAC 40 fell 0.05% to 3236.28 and Germany’s DAX slipped 0.31% to 4887.22.

In Asia, Hong Kong’s Hang Seng rallied 0.3% to to 16430.08 while China’ Shanghai Composite gained 0.29% to 2467.34. Japanese markets were closed for a holiday.

Citigroup may put more employees on commission or offer them larger base salaries as it tries to retain key staffers without running afoul of laws limiting executive pay at banks that receive government funds.

Three people familiar with the matter said the bank has examined a series of possible moves, including special stock-based bonuses, or offering employees a percentage of their group’s revenue.

Banks across Wall Street are struggling to reward top performers without violating an amendment to the 2009 stimulus package limiting executive pay. That amendment calls for the Treasury Secretary to review compensation of top employees at any major recipient of funds from the government’s Troubled Asset Relief Program.

Bonuses are expected to face particular scrutiny after Wall Street firms paid $18.4 billion of bonuses in 2008, a year in which the U.S. financial sector required more than $1 trillion of government support.

Some banks, most notably Goldman Sachs Group Inc, (GS) hope to repay their TARP funds as soon as possible, in part to avoid having to comply with pay limits.

Citigroup, which has received $45 billion of TARP capital and is not believed to have much hope of paying the government back anytime soon, is having discussions with the government about measures that might be appropriate for retaining revenue producing employees.

A number of possibilities are under discussion, and generally are geared toward ensuring that employees are motivated to perform well. The No. 3 U.S. bank will have a better sense of how to proceed once the Treasury Department crafts more specific guidelines on pay, one person said.

Of particular concern is the Phibro business, which has been extraordinarily profitable. If Citigroup cannot find ways to compensate people there, the energy trading business may be spun off, sold, or opened to outside investors, a person familiar with the matter said. News of this possibility was first reported in the Wall Street Journal.

The Wall Street Journal also reported that Citigroup had asked the Treasury Department for permission to pay special bonuses to key employees. One scenario discussed internally would be a one-time bonus paid to employees mainly in stock that would vest over at least three years.

Citigroup spokesman Stephen Cohen said in an emailed statement that the bank has not presented Treasury with any specific plan for staff retention or special cash payouts.

“Citi continues to examine ways to ensure its employee compensation practices are competitive in this very challenging market environment,” Cohen said in the statement.

The alternatives that Citigroup is considering to standard discretionary bonuses still have flaws with them, experts said.
Commissions, for example, only work well for professionals in sales positions, and even then can lead to conflicts over which sales person was responsible for a deal. Giving percentages of revenue could result in outsized paydays if a business outperforms, which could lead to public outcry.

“There’s no perfect answer to this issue,” said Michael Holland, founder of Holland & Co, which oversees more than $4 billion.

STEMMING THE EXODUS

But banks have every incentive to figure out how to retain their top staff. On Monday, a source said two equity traders and a salesman from Bank of America Corp (BAC) moved to hedge fund giant Citadel Investment Group. Foreign banks such as Deutsche Bank have also been able to hire employees from U.S. competitors.

In fact, banks that are not profitable will likely have trouble from a political standpoint paying employees anything but stock in bonuses, while banks that are profitable will likely look to repay TARP as quickly as possible to eliminate restrictions they face.

“I just don’t think all this planning for other ways to pay people will amount to anything,” said Paul Sorbera, a recruiter at Alliance Consulting in New York.

But for now, banks are concerned about retaining staff, and ensuring they are properly motivated.

“If we can’t pay people competitively, we can’t expect them to stay here,” said one bank executive.

WASHINGTON — Federal Reserve Chairman Ben Bernanke will provide Congress with a fresh assessment of the country’s fragile economic health that probably will note some recent improvements, but still warn that it will take time — perhaps years — for the economy to get back to normal.

At the same time, Bernanke is likely to face tough questions by lawmakers at a hearing Tuesday before Congress’ Joint Economic Committee about the Fed’s multitrillion-dollar efforts to bust through credit clogs and get banks lending more freely again to people and businesses.

Lawmakers worry that the Fed’s lending programs, as well as the government’s bailout of insurance giant American International Group and taxpayer aid to Citigroup, Bank of America and others, will encourage companies to take excessive risks because Uncle Sam will clean up their messes.

Moreover, the panel’s chair, Rep. Carolyn Maloney, D-N.Y., and other lawmakers, have pushed the Fed to be less secretive. Some have called for the Fed to disclose the identity of banks and investment firms that draw loans from its emergency lending program and what collateral they put up for them.

The Fed chief also is likely to be prodded for details about how 19 large banks fared on “stress tests.” Results, to be released Thursday, should shed light on which banks may need government support if the recession were to take a turn for the worse.

On the economic front, there have been some glimmers of hope that the recession is letting up.

Economic reports out Monday showed that construction spending and pending home sales both fared better than expected in March, and that gave stocks a big lift. The S&P 500, considered Wall Street’s most important indicator, bounded up 3.4 percent Monday and erased the last of its losses for 2009. And the Dow Jones industrials shot up more than 200 points and had their first finish above 8,400 since Jan. 13.

Last week, Bernanke and his colleagues said they detected signs the recession is loosening its firm grip, an observation likely to be repeated at Tuesday’s hearing.

Although the economy is still contracting, “the pace of contraction appears to be somewhat slower,” Fed policymakers said last week in deciding not to take any new steps at that time to shore up the economy.

The economy’s rate of decline topped 6 percent in both the final three months of last year and in the first three months of this year. It marked the worst six-month performance since the late 1950s.

However, in the current quarter, analysts are predicting the economy won’t shrink nearly as much — anywhere from a pace of 1 percent to 3 percent. As President Barack Obama’s economic stimulus package of tax cuts and increased government spending takes hold, some think there’s a chance the economy will start growing again in the third quarter. Others, though, think that’s more likely to happen in the final quarter of this year.

Economists believe the worst of the recession is past in terms of lost economic growth — barring any new shocks. Still, the Fed warned last week that “economic activity is likely to remain weak for a time.”

And, even though spending by American consumers has shown signs of “stabilizing, ” the Fed said that ongoing job losses, tanking home values and hard-to-get credit will weigh on consumers.

More Americans also will be pushed into the ranks of the unemployed in the months ahead.

The jobless rate is expected to jump from 8.5 percent in March to 8.9 percent in April as employers continue to slash hundreds of thousands of jobs. The government releases that report on Friday.

Unemployment is expected to hit 10 percent by the end of this year and will probably rise a bit more into early next year before it starts to slowly drift down. Companies won’t feel inclined to ramp up hiring until they are confident that any economic recovery has staying power.

Economists said the the unemployment rate isn’t likely to return to normal — meaning around 5 percent — until 2013.

WASHINGTON — The U.S. is expected to direct about 10 of the 19 banks undergoing government stress tests to boost their capital, according to several people familiar with the matter, a move that officials hope will quell fears about the solvency of the financial sector.

The exact number of banks affected remains under discussion. It could include Wells Fargo & Co., Bank of America, Citigroup Inc. and several regional banks. At one point, officials believed as many as 14 banks would need to raise more funds to create a stronger buffer against future losses, these people said, but that number has fallen in recent days.

Representatives from Wells, Bank of America and Citi declined to comment.

The Obama administration announced the stress tests — a process of examining banks’ ability to withstand future losses — back in February. At the time, the news sparked concern among investors and depositors that the results would be used to shut down or nationalize some of the country’s weaker institutions. But Federal Reserve Chairman Ben Bernanke and Treasury Secretary Timothy Geithner assured investors that none of the banks undergoing stress tests would be allowed to fail and that all would have access to government funds if needed.

In fact, the stress-test regimen appears so far to have eased some of the fears that swept through financial markets in February, just as President Franklin D. Roosevelt’s bank holiday did in 1933. He shut down the nation’s banks for several days during a banking panic and only reopened those the government deemed safe. One possible explanation for the recent, calmer state of affairs: The problems the tests appear to be uncovering aren’t as bad as some analysts’ worst expectations.

Also, if multiple banks are being directed to boost their capital, that could make the process seem less daunting than if it were singling out a few companies as weak.

In a sign of how much the doomsday scenario has faded, bank stocks surged Monday despite reports that Wells Fargo was identified in an initial review as one of the financial institutions needing a stronger buffer.

General Motors Corp. may be more likely to end up in bankruptcy based on the Obama administration’s willingness to place Chrysler LLC into court protection to safeguard union health-care benefits.

With GM and its biggest bondholders at odds over resolving $27 billion in unsecured claims by a June 1 deadline, the Chrysler model indicates that President Barack Obama may resort to bankruptcy to end any impasse over that debt, said Martin Fridson, chief executive officer of New York-based credit investment firm Fridson Investment Advisors.

Chrysler filed for protection April 30 after the U.S. was unable to persuade secured lenders to swap $6.9 billion in claims for $2.25 billion in cash. A union retiree health-care trust was offered a 55 percent stake in Chrysler.

“This confirms the fear, which right along has been that the Obama administration is more sensitive or beholden to the unions than the bondholders,” Fridson said. “It makes it clear that GM bondholders aren’t likely to be able to work out anything outside of bankruptcy.”

GM bondholders proposed April 30 they get a 58 percent ownership stake in the Detroit-based automaker in exchange for their $27 billion in unsecured claims. Bondholders are objecting to GM’s proposal they get a 10 percent share of GM equity while a union health fund would get $10 billion in cash and as much as a 39 percent stake for $20 billion in unsecured claims.

Renee Rashid-Merem, a GM spokeswoman, Roger Kerson, a UAW spokesman, and Jenni Engebretsen, a Treasury spokeswoman, declined to comment on the matter.

Nevin Reilly, spokesman for the ad hoc committee of GM bondholders, also declined to comment. The group said last week its counteroffer would allow GM to “avoid a lengthy and difficult bankruptcy process.”

Dry Run for GM

GM said last week it must cut $44 billion in obligations from its books, including $10 billion of loans from the U.S. government, to return to an operating profit next year. It wants to win permission from the Obama administration to keep $15.4 billion in loans and receive $11.6 billion more.

“There’s no question Chrysler” acts as a dry run for GM, said Sean Egan, president of Egan-Jones Ratings Co. in Haverford, Pennsylvania. “It was designed that way because Chrysler is a much more manageable entity. The impact on the economy, on employment, is a microcosm of what is likely to happen with GM.”

GM’s $3 billion of 8.375 percent bonds maturing in July 2033 fell 0.25 cent to 8.5 cents on the dollar, yielding about 96 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

The shares were unchanged at $1.81 in New York Stock Exchange composite trading.

Competing Concepts

GM proposed that bondholders exchange 225 shares of stock for each $1,000 of principal. At least 90 percent must accept the offer for the automaker’s debt-reduction plan to work.

In their counterproposal, the bondholders said that in addition to their receipt of a majority stake in a reorganized GM, 41 percent of the stock would go to a union health-care trust and the last 1 percent to existing shareholders.

The bondholders committee had been in contact with about 100 institutions representing $12 billion in GM debt including San Mateo, California-based Franklin Resources Inc. and Loomis Sayles & Co. of Boston, a person familiar with the negotiations has said.

Time Running Out

Even if there is appetite for an agreement, it’s unlikely the thousands of GM bondholders can be pulled together in time, said John Casesa, managing partner at New York-based consulting firm Casesa Shapiro Group.

“The Chrysler bankruptcy can either scare them into settling or maybe make them more likely to take GM into bankruptcy,” Casesa said. “I don’t get the sense that the bondholders are ready to give in.”

Obama’s auto task force ousted Chief Executive Officer Rick Wagoner at the end of March, saying GM’s plan to return to profit wasn’t aggressive enough, and ordered new CEO Fritz Henderson to cut the automaker’s debt by more than initially demanded.

The U.S., which would hold at least half the equity in a reorganized GM in the automaker’s proposal, also ordered acting Chairman Kent Kresa to replace the majority of the GM directors as soon as possible.

“Obama has said the government doesn’t want to run a car company, so why not take the bondholders’ deal, which gets them out of ownership?” said Pete Hastings, a fixed-income analyst at Morgan Keegan & Co. in Memphis, Tennessee. “The 10 percent ownership offer is ridiculous, so their best shot is to try and win in court.”

‘Labor’s Interest’

The bondholders shouldn’t be surprised that the unions are getting preference over investors in an Obama administration, Egan said.

“If the government is providing money to these entities, they’re going to be looking out for labor’s interest first and foremost,” he said.

“ You may claim it’s unfair, but that’s the political reality and the time and cost of suing the federal government is prohibitive in most cases.”

The government was more likely to get its way in Chrysler because a majority of lenders were already supportive of the U.S. offer for their debt, said Mirko Mikelic, who helps manage $19 billion at Fifth Third Asset Management in Grand Rapids, Michigan. Mikelic dumped GM debt last year and still manages some debt in GMAC LLC, the automaker’s former finance unit. There seems to be little likelihood of a similar majority agreement at GM, he said.

The longer the GM bondholders have held out, the worse the offers have gotten, according to Egan.

“You’re better off acting early,” he said.

The head of the World Health Organization, Margaret Chan, yesterday suggested the swine flu pandemic alert would eventually move to its highest level.

But the woman in charge of the global fight against the H1N1 outbreak said a move to level six should not be taken as a cause for panic.

“Level six does not mean, in any way, that we are facing the end of the world. It is important to make this clear because [otherwise] when we announce level six it will cause unnecessary panic,” she told Spain’s El País newspaper.

Officials from the United Nations and the WHO later insisted that there were no imminent plans to raise the alert level. But they agreed that going to the highest level could be an eventuality.

Raising the alert level to six would mean that a global pandemic was in full effect. However, the officials emphasised that a pandemic did not necessarily mean the disease was particularly deadly.

And in a video link with the UN, Chan appeared to attempt to allay fears, adding: “We are not there yet.”

The Financial Times also reported that Chan, who recently raised the threat of a pandemic to level five, had suggested a move to level six was likely. She warned that the real blow might come if a second wave of cases swept across the globe at the start of the winter flu season.

“If it’s going to happen, it would be the biggest of all outbreaks the world has faced in the 21st century,” she said.

The UN secretary general, Ban Ki-moon, said: “Let us remember that even if the WHO does declare phase six, a pandemic, that would be a statement about the geographic spread of the virus, not its severity.”

Spain remains the European country with the most cases of swine flu. By yesterday there were 54 reported cases, including four people who were infected in the country. The outbreak has raised concerns over its potential impact on tourism.

Swine flu cases reached 1,085 worldwide, spreading to 21 countries and every major region of the U.S., health officials said. The symptoms, no more serious than those of seasonal flu, may worsen as seasons change.

In the U.S., the H1N1 virus has been confirmed by laboratory tests in 286 patients in each of nine regions tracked by the U.S. census, according to the U.S. Centers for Disease Control and Prevention in Atlanta. The disease, most active in Canada, Mexico and the U.S., has been confirmed in Central America, South America, Europe, the Middle East, Asia and New Zealand.

The World Health Organization said it’s bracing for the possibility the disease will worsen despite signs the virus may be no worse than seasonal flu. As the outbreak eases in Mexico, where it struck hardest, health officials are focusing on the Southern Hemisphere, where flu season will likely begin before a swine flu vaccine is available.

“That part of the world will be heading into the winter months,” Keiji Fukuda, the World Health Organization’s assistant director-general for health, security and environment, said today at a news conference in Geneva. “We’re really trying to get a handle on how far has this virus spread out and how much has it established itself in different parts of the world.”

The U.S. CDC reported 286 cases in 36 U.S. states, with one death. The number of people with flu in the U.S. is increasing when the normal flu season would be ending, the CDC said. At least 533 schools in 24 states were closed today, shutting out about 330,000 students, according to the U.S. Department of Education.

Mexico Peaks

Mexico’s outbreak probably peaked last week and patients are responding well to antiviral treatments, Health Minister Jose Cordova said yesterday. The virus has been confirmed in 23 of Mexico’s 31 states and the capital district.

“Mexico is trying to return to normalcy as soon as possible,” President Felipe Calderon said yesterday, adding that it was too soon to tally the economic cost. “We are going to win this battle.”

St. Francis Preparatory School in New York, where more than 1,000 students were likely infected, reopened today after being closed since April 27. New York has 73 confirmed cases of swine flu, though it stopped testing everyone suspected of having the illness, said Thomas Frieden, the city health commissioner, at a news conference today.

More Cases

“It is no more severe, from everything we have seen, than seasonal flu.” Frieden told reporters at St. Francis, in the New York borough of Queens.

Declaration of a pandemic is imminent, the World Health Organization said over the weekend. The WHO raised its six-tier alert to 5 on April 29 and a further elevation would signal a pandemic, alerting governments to carry out plans to curb the disease.

“While we’re not out of the woods yet, we are seeing some encouraging signs,” said Richard Besser, acting chief of the U.S. Centers for Disease Control and Prevention in Atlanta, in a conference call today. “Here in the United States, we’re at the very end of our flu season. There aren’t a lot of other flu viruses around that it’s competing with. What happens when it goes into countries where there are other viruses circulating?”

Besser said the U.S. strategy to close schools with suspected cases doesn’t effectively halt the virus’ spread once it becomes established in an area. The CDC is evaluating whether to change its advice to schools, he said.

New Cases

The WHO, a Geneva-based agency of the United Nations, today added Colombia and El Salvador to the list of countries with confirmed cases. The other nations are Austria, Canada, Costa Rica, Denmark, France, Germany, China (Hong Kong), Ireland, Israel, Italy, Mexico, the Netherlands, New Zealand, South Korea, Spain, Switzerland, the U.K., and the U.S.

Canadian health officials on May 2 reported the world’s first known case of swine flu jumping to pigs from a human, probably after a farm worker in the province of Alberta became ill during a trip to Mexico. Hundreds of pigs on the farm showed symptoms of the same H1N1 strain in humans and were recovering, according to the Canadian Food Inspection Agency.

Pigs are an ideal breeding location for new forms of the flu, and further genetic scrambling can result in deadlier forms of the new swine flu, said Nancy Cox, chief of the flu division at the Center for the Immunization and Respiratory Disease at the Atlanta-based CDC.

Mixing in Pigs

The animals serve as a “wonderful mixing vessel” for bird, human and swine viruses, Cox said. The process of two viruses merging to form a new virus can also take place in humans.

Even if swine-flu symptoms are mild, the ease with which the new virus spreads among a world population makes it a threat, health officials said.

Data so far suggest the virus is striking younger patients than is typical for influenza, and younger patients than usual are entering hospitals, said Anne Schuchat, a scientist at the CDC. “Very few” patients with swine flu are older than 50, and the median age is 17. It’s possible that older people have greater immunity, she said.

The three main seasonal flu strains — H3N2, another form of H1N1, and type-B — cause 250,000 to 500,000 deaths a year globally, according to the WHO. The new flu’s symptoms are similar: aches, coughing, and fever. The CDC says people with the swine flu are more likely to have diarrhea.

Pandemic Threat

The world is now closer to another influenza pandemic than at any time since 1968, when the last of the previous century’s three pandemics occurred, world health experts said. The WHO hasn’t had a phase 6 alert since it introduced the six-level system in 2005. Before last week, the warning had been at phase 3 since 2007, when it was elevated for an outbreak of avian influenza, according to the WHO Web site.

The new flu strain has now struck more people than the H5N1 avian influenza that emerged in 2003. That illness killed more than half of the 421 who contracted the malady worldwide. Unlike swine flu, it didn’t spread from person to person.

The Spanish flu of 1918, another version of bird flu, killed as many as 50 million people in one of history’s deadliest outbreaks.

The U.S. is hastening production of its annual flu shots based on strains identified before the H1N1 outbreak, said Kathleen Sebelius, who was confirmed as the U.S. Health and Human Services secretary last week. That will make capacity available if vaccines are needed for swine flu, she said.

Batches of seed virus are being developed for potential vaccine production, according to the WHO. Sanofi-Aventis SA of Paris, Baxter International Inc. of Deerfield, Illinois, and GlaxoSmithKline Plc of London, are talking with world health authorities about producing shots, the agency said.

Authorities advised hand-washing, hygiene and staying home if sick as the most effective ways to control the outbreak. The WHO and CDC said closing borders or killing animals are costly steps that wouldn’t slow the spread of flu.

WASHINGTON (Reuters) – The new H1N1 swine flu has infected 286 people in 36 U.S. states and it is likely to spread to every state, the U.S. Centres for Disease Control and Prevention reported on Monday.

Most cases remain mild but 35 have been hospitalized, the CDC’s acting director, Dr. Richard Besser, told a news conference. A toddler who died in Texas last week remains the only death in the United States so far.

In Mexico, officials say they hope cases there will continue to decline, but it was clear the outbreak of the never-before-seen strain of influenza was growing elsewhere.

Besser said the virus was so clearly everywhere that the CDC might step down its recommendations to test people so that state and federal health officials could spend their limited time and resources elsewhere.

“We are seeing over 700 probable cases in a total of 44 states,” Besser said. So far, 99 percent of probable cases have, upon further testing, turned out to be the new H1N1 strain, Besser said.

“This likely represents an underestimation of the total number of cases across the United States,” Besser added, because most people with flu-like symptoms — fever, aching muscles and cough — are not even getting tested.

Besser said the CDC was even reconsidering the strategy of closing schools where cases turn up. More than 500 U.S. schools have been closed because of outbreaks.

Schools are closed to protect children, and to keep children from being “amplifiers” who spread an infection in the community. But this virus is looking to be as mild as seasonal flu, which only rarely kills children.

“It appears that the virus is already pretty well established in those communities,” Besser said. “So we are looking at the school closure guidance.”

That does not mean the virus is harmless, he noted. Seasonal flu infects an estimated 30 million Americans every year, about 10 percent of the population, kills 36,000 and puts 200,000 into the hospital.

“People are hospitalized and die every year with seasonal flu,” Besser said. The new virus has killed people in Mexico and can expect to kill elsewhere, as well, he said.

He said he was pleased at how well-prepared state and local officials were for the outbreak — a result of years of planning for pandemic influenza and other disasters that started with the 2001 anthrax attacks, accelerated when H5N1 avian influenza re-emerged in 2003 and kicked into high gear when the response to Hurricane Katrina in 2005 was so poor.