By Adriana Barrera and Stephanie Nebehay

MEXICO CITY/GENEVA (Reuters) - A new flu that has killed up to 68 people in Mexico could start a global epidemic, the World Health Organization warned on Saturday, as tests showed the strain might be spreading in the United States.

Mexico's crowded capital, where most of the deaths happened and home to some 20 million people, hunkered down in fear of the swine flu.

Tests confirmed that eight New York City schoolchildren had a type A influenza virus that was likely to be the swine flu, the city's health commissioner said. Kansas state health officials confirmed two cases of swine flu, CNN reported, adding to the original eight cases in the United States.

Officials from WHO and the U.S. Centers for Disease Control and Prevention helped Mexican health experts test hundreds of patients with flu symptoms for the never-before-seen virus.

In Mexico City, parents canceled kids' parties, bars were closed and residents stocked up on DVDs as people stayed home for the weekend to avoid contamination.

"I think it's worse than they're telling us," said 35-year-old Lidia Diaz, sniffling and wearing a surgical mask as she headed to a clinic in the capital.

WHO declared the outbreaks a "public health event of international concern" and urged all countries to boost their surveillance for any unusual outbreaks of influenza-like illness and severe pneumonia.

The agency stopped short of raising the threat level for a pandemic -- a global epidemic of serious disease.

"It has pandemic potential because it is infecting people," WHO Director-General Dr. Margaret Chan said in Geneva.

"However, we cannot say on the basis of currently available laboratory, epidemiological and clinical evidence whether or not it will indeed cause a pandemic."

The last flu pandemic was in 1968 when "Hong Kong" flu killed about a million people globally.

A pandemic would deal a major blow to a world economy already knocked into its worst recession in decades by the crisis in financial markets.

As far away as Hong Kong and Japan, health officials stepped up checks of travelers with flu-like symptoms, and the CDC said it was actively looking for new infections in the United States.

"We are worried and because we are worried we are acting aggressively on a number of fronts," the CDC's Dr. Anne Schuchat told reporters. "The situation is serious."

1,000 CASES SUSPECTED

Mexico has said the flu had killed 20 people and could be to blame for 48 more deaths. In all, more than 1,000 suspected cases have been reported nationwide. Most of the dead were aged 25 to 45, a worrying sign because a hallmark of past pandemics has been high fatalities among healthy young adults.

The new flu strain -- a mixture of swine, human and avian flu viruses -- is still poorly understood.

Mexico has shut schools and museums and canceled hundreds of public events in the capital to prevent further infections.

A significant worsening of the outbreak could hit tourism and consumer spending in a country already weakened by the global economic crisis and an army-led war on drug cartels.

Calderon reassured Mexicans that the flu was "curable", while Mexico City Mayor Marcelo Ebrard said his goal was to slow the spread of the virus in the capital.

No countries or global bodies have issued travel bans to Mexico, but some countries alerted travelers to check websites for information on the flu outbreak.

The WHO says the virus from 12 of the Mexican patients is genetically the same as a new strain of swine flu, designated H1N1, seen in eight people in California and Texas. All of the eight have recovered.

(Additional reporting by Jonathan Lynn in Geneva, Mica Rosenberg, Catherine Bremer and Alistair Bell in Mexico City, Maggie Fox in Washington and Tan Ee Lyn in Hong Kong; Editing by Eric Walsh)

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