Oil prices fell over 2 percent toward $50 a barrel on Monday, paring some of the previous session's near 4 percent gain on fears of a global flu pandemic that could give the world economy another knock.

Any major widening of a flu outbreak that brought Mexico's capital city to a halt over the weekend, with new cases also cropping up in other countries, could hit air travel and further slow economies already struggling with the fallout of the credit crisis.

Investors moved out of the stock markets and risky assets, heading for traditional safe havens like gold, with the impending release of U.S. bank stress test results, a Federal Reserve meeting and a flood of earnings due later this week also heightening caution.

U.S. crude oil futures for June delivery fell $1.22 to $50.33 a barrel by 0500 GMT, erasing some of Friday's gains of $1.93 that brought the contract to settle at $51.55.

London Brent crude fell 96 cents to $50.71.

The swine flu in Mexico is causing some risk aversion in the markets and is already weighing on the Dow, said Ben Westmore, a commodities analyst at the National Australia Bank.

Worries of a global swine flu pandemic grew over the weekend with new infections in the United States and Canada discovered on Sunday.

Reminiscent of the Asian bird flu earlier in the decade, a swine flu outbreak could become a major setback to the already fragile state of the world economy, research firm Informa Global Markets said in a report.

The U.S. dollar fell to its lowest in a month against the yen as worries about the spread of the flu from Mexico sent investors into perceived safe-haven currencies such as the yen and the Swiss franc.

Asian shares were also lower, with airlines and transport companies particularly hard hit.

Oil prices, which have largely stagnated around $50 a barrel for most of this month, have been tracking equities closely in recent weeks as investors looked to stocks for signs of an economic recovery that could revive demand for fuel.

Gulf oil producers said on Sunday they can tolerate moderate crude prices for longer to help revive global growth, but shared a concern with consumer nations that a prolonged period of low prices could sow the seeds of a future fuel price spike.

OPEC Secretary General Abdullah al-Badri separately told Reuters that world oil prices could recover to $60 per barrel by the end of the year if the global economy picks up, and it was too soon to judge if fresh output cuts would be needed when the cartel next meets on May 28.

Crude oil speculators on the New York Mercantile Exchange shifted to a net short position in the week to April 21, according to data from the U.S. Commodity Futures Trading Commission released on Friday.

(Editing by Michael Urquhart)