U.S. financial markets are stabilizing as data suggest the recession's worst may be over, but a surprise event like a flu outbreak or fresh bank troubles could send them tumbling anew, bankers and analysts said on Wednesday.

The market is still on pins and needles, said Rebecca Patterson, a managing director and the Global Head of Foreign Exchange and Commodities at J.P. Morgan Wealth Management.

It would not take a lot right now to tip us back into a weaker place, she said at the Milken Institute Global Conference.

Financial markets reacted calmly to news this morning that the U.S. economy contracted sharply in the first three months of the year as gross domestic product shriveled at an annual rate of 6.1 percent.

Economists at big banks expect the economy to keep shrinking in the current quarter, but some signs including news that consumer spending recovered somewhat in the first quarter suggest the worst of the decline may be over.

Still, it is too early to call an all-clear for financial markets, bankers and analysts warned.

U.S. unemployment is expected to keep rising and investors still worry about problems the unknown.

We live in a more volatile world than we like to admit and the market continues to not adequately factor in possible disasters, said David Solomon, a managing director and co-head of Goldman, Sachs & Co.'s investment banking division.

The potential difficulties range from fresh problems with Pakistan, new issues for U.S. banks, or an international health crisis.

What worries me most is surprise government action, said Meredith Whitney, a banking analyst credited with seeing how vulnerable banks were long before anyone else did.

The government's track record on announcing new stimulus plans has been mixed, with markets often tumbling when yet another program was unveiled earlier this year.

Next week, results of the so-called stress tests in which U.S. government examiners reviewed the books of more than a dozen large U.S. banks are expected to become public.

Bankers worry that fresh liquidity problems at big banks, requiring more government financial aid, could unnerve U.S. taxpayers and weigh on markets. They also worry that too little information about which institution is doing well and which isn't might lead to speculation that could undermine markets.

If banks can't heal with time and they do need more money, that could create a lot of uncertainty, J.P. Morgan's Patterson said.

And more immediately, bankers raised concerns about how a possible swine flu pandemic might affect markets.

The White House has asked Congress to free up $1.5 billion to deal with the disease as more cases are confirmed across the United States.

(Reporting by Svea Herbst-Bayliss, editing by Gerald E. McCormick)