* Blue-chips drop 1.6%, Hang Seng falls 2.3% to Jan. 8 lows
* Shanghai shares lowest YTD; Yuan hits 1-week bottom
* Airlines, casino stocks down but drugmakers climb
* China confirms 4 deaths, spread of new virus before long holiday
HONG KONG/SHANGHAI, Jan 21 (Reuters) - China’s stock market fell to two-week lows and its currency retreated from six-month highs on Tuesday as worries about a new virus that has killed four people so far grew, after authorities confirmed it spread through human contact.
A new virus broke out just ahead of the Lunar New Year holiday - between Jan. 24 and 31 - from the central city of Wuhan to Beijing, Shanghai and other cities, with more than 200 cases reported so far.
“The ultimate fear is that this may spread with the tremendous human flow during the holiday,” said Alex Wong, managing director at Ample Finance in Hong Kong. “The selling originated in travel related stocks and is now spreading out.”
The Shanghai market fell more than 1.3%, hitting its lowest point so far this year and paring gains made on the back of investor optimism after the U.S.-China interim trade deal.
Chinese blue-chip stocks shed as much as 1.6% and Hong Kong’s benchmark Hang Seng Index lost 2.3% - both lingering around their lowest levels since Jan. 8.
Shares of airlines, cinema and casino operators fell. But drugmakers across Chinese exchanges gained. The CSI 300 healthcare index rose 0.6%.
Remarks by Chinese President Xi Jinping to make curbing the outbreak a top priority drew investors’ attention to the depth of the crisis, adding to selling pressure, said an onshore-based broker.
The virus evoked memories of the 2002/03 outbreak of Severe Acute Respiratory Syndrome (SARS), which also originated in China and killed hundreds globally.
But Zhang Qi, a Shanghai-based analyst at Haitong Securities, said the Wuhan virus does not yet warrant a sell-off.
“We have more experience in dealing with diseases,” he said. “We will need to watch whether it spreads further, but so far the scale is not that big.”
Risk-off vibes also pushed the Chinese currency lower.
The onshore yuan lost about 0.4% to 6.8973 per dollar. It fell as much as 0.5% in offshore trading - past the 6.9 per dollar handle for the first time in almost a week.
The currency was on a tear earlier this month as China pledged to refrain from competitive devaluation, in a major de-escalation of trade tensions with Washington.
“Currently, (the Wuhan) virus might be the only reason explaining why market sentiment has changed all of a sudden,” a trader at a foreign bank in Shanghai said of the yuan’s U-turn.
Several traders in Shanghai said the trade deal-inspired appreciation was overdone, while noting that dollar demand usually rises among Chinese households and companies near the Lunar New Year for payments and overseas trips.
“Such purchases were held as the yuan kept strengthening in the last few weeks. And these pressures were released today,” said one of the traders. (Reporting by Noah Sin in Hong Kong and Winni Zhou in Shanghai; Writing by Noah Sin; Editing by Christian Schmollinger and Muralikumar Anantharaman)
Our Standards: The Thomson Reuters Trust Principles.