By Maggie Fox, Health and Science Editor

WASHINGTON (Reuters) - Researchers have found an unexpected genetic mutation that causes a rare type of early childhood cancer, and said on Sunday it represents a whole new mechanism for the development of cancer.

They found that children with a rare, aggressive form of lung cancer called pleuropulmonary blastoma, or PPB, are born with a mutation in DICER1, itself a master controller gene that helps regulate other genes.

In addition, they found children with PPB have normal-looking cells in their lungs that appear to cause neighboring cells to turn cancerous.

"This mutation tells us how embryos and fetuses and young children maldevelop -- how something goes wrong," Dr. Jack Priest, research director of the International PPB Registry in Minnesota, said in a telephone interview.

"It's a bigger story than PPB. It suggests a completely novel cancer induction," Priest added.

PPB is so rare that it is only diagnosed in 10 to 20 children every year in the United States and 50 to 60 globally. Identified and treated early, it has a 90 percent cure rate but doctors rarely expect to find lung cancer in newborns or young children.

If not treated correctly, children only have about a 40 percent chance of survival.

The researchers told a meeting of the American Association for Cancer Research in Denver that the finding may or may not shed light on adult cancers, but it provides insight into the mechanisms underlying some early childhood cancers.

"Some of these children were born with PPB," Priest said. He said one child in the study had evidence before birth of tell-tale cysts in the lungs in an ultrasound done before birth.

Dr. Ashley Hill of Children's National Medical Center in Washington and colleagues analyzed DNA samples from 49 people in four families. About 40 percent of cases of PPB are found in children whose families have a history of some kind of cancer, suggesting an inherited genetic cause.

They were surprised to find the mutation in DICER1, which is named for its function chopping up large molecules into smaller molecules called microRNAs that help regulate other genes.

The people with the DICER1 mutations had the defect in every cell of the body, but Hill found something else unusual. Seemingly normal lung cells, which carried an even more severe form of the mutation, were apparently causing neighboring cells to go haywire and form tumors.

"The cell, because it is screwed up, is inducing cancer in neighboring cells. That has never been seen before," Priest said.

The next step is to try to develop a test for the DICER1 mutation that can be used to see if children born to high-risk families carry it, and thus are at high risk themselves, Priest said.

(Reporting by Maggie Fox, editing by Jackie Frank)

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