Stocks fell on Monday as concerns that a possible global flu outbreak could dampen optimism about the economy overshadowed a cost-cutting plan from General Motors Corp and gains in biotechnology stocks.

Wall Street slid in choppy trade as governments around the world moved to contain the spread of a possible swine flu outbreak, as a virus that is believed to have killed over 100 people in Mexico spread to the United States and Canada and may have reached as far as New Zealand.

The Amex Airline Index shed 11.2 percent as investors worried that travel would be hit be the flu fears. Among the laggards, UAL Corp , the parent of United Airlines, gave up 15 percent at $5.47, while Continental Airlines Inc lost 14 percent to $11.37.

However, the worries were tempered as GM shares surged 18 percent after the troubled automaker announced a restructuring that investors hoped would keep the company alive as it tries to secure government funding.

There's no question that (the flu outbreak) is affecting some stocks, such as airlines and restaurants but it's clearly not a big enough issue to effect the outlook for the global economy, said Hugh Johnson, chief investment officer of Johnson Illington Advisors in Albany, New York.

The question of what will happen to GM is an ongoing and substantial story. The message of the market is they may have done just exactly what they need to to break even.

The Dow Jones industrial average dropped 71.05 points,or 0.88 percent, to 8,005.24. The Standard & Poor's 500 Index dropped 9.78 points, or 1.13 percent, to 856.45. The Nasdaq Composite Index <.IXIC> dropped 16.93 points, or 1.00 percent, to 1,677.36.

On Nasdaq, cell-phone chip supplier Qualcomm Inc was a bright spot, up 4.4 percent to $43.19 after it swung to a quarterly loss but raised its full-year revenue target on signs of market improvement.

Recent data has suggested the recession could be abating, and quarterly earnings have been less disappointing than Wall Street expected.

Chevron Corp and Exxon Mobil Corp were among the heaviest weights on the blue-chip index as June oil future slid more than 4 percent on flu worries. Chevron was down nearly 2 percent at $65.33, and Exxon gave up 1 percent at $65.91.

In contrast, the threat of a flu pandemic triggered by the new swine flu strain sent shares of drugmakers higher, with Gilead Sciences climbing 3.8 percent to $47.54. The Merrill Lynch Biotech Holders ETF rose 2 percent.

The CBOE Volatility Index, considered to be Wall Street's fear gauge, rose 6 percent to 39.05.

Jitters over what a government stress test of 19 major financial institutions might reveal pressured financial stocks, with the KBW Bank index off 3.5 percent. Wells Fargo & Co fell 4.8 percent to $20.38 after influential analyst Richard Bove downgraded the bank to hold from buy.

Also on the earnings front, Dow component Verizon Communications Inc , the No. 2 U.S. phone company, posted higher-than-expected profits, helped by its purchase of a smaller rival and growth in cell-phone customers. Verizon's shares were down 2.6 percent at $30.19.

(Additional reporting by Leah Schnurr)

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