* Shanghai culls poultry, closes bird market
* HK steps up bird flu surveillance
* Shares fall in Hong Kong and Europe
* Work on H7N9 bird flu vaccine begins
By Fayen Wong and Clare Baldwin
SHANGHAI/HONG KONG, April 5 (Reuters) - Chinese authorities slaughtered over 20,000 birds at a poultry market in Shanghai on Friday as the death toll from a new strain of bird flu mounted to six, spreading concern overseas and sparking a sell-off in airline shares in Europe and Hong Kong.
The local government in Shanghai said the Huhuai market for live birds had been shut down and 20,536 birds had been culled after authorities detected the H7N9 virus from samples of pigeons in the market. Other live poultry markets in the city will be closed down from Saturday, it said.
China's eastern Jiangsu province said two new H7N9 bird flu cases have been confirmed on Friday, bringing the total number of reported infections nationwide to 16.
At least four of the dead are in Shanghai, a city of 23 million people and the showpiece of China's vibrant economy.
The latest death was of a 64-year-old man in Zhejiang province, state news agency Xinhua said on Friday, adding that none of the 55 people who had close contact with him had shown symptoms of infection.
Shanghai authorities stressed the H7N9 virus remained responsive to the drug Tamiflu and those who were diagnosed early could be cured.
"We currently have enough reserves of Tamiflu to meet with the current outbreak," Wu Fan, director of the Shanghai Center for Disease Control & Prevention, told a news conference.
Tamiflu is made by Roche Holding AG.
Airline shares tumbled in European markets on fears the outbreak could become widespread. The STOXX Europe 600 travel and leisure sector index fell by 3.5 percent.
In Hong Kong, the overall index closed at a four-month low, led by falls in airline shares over fears of diminished demand for air travel. Air China slumped 9.8 percent, its worst single-day loss in nearly four years.
In Shanghai, the rising death toll prompted some residents to stay away from markets with live chickens and ducks.
"I'm only getting my groceries at the large supermarkets now because I don't think it is safe to visit the wet markets anymore," said 38-year-old Shao Linxia, adding she had also stopped buying poultry since news of the bird flu surfaced.
"We all remember SARS and how quickly it could spread, so we are obviously worried."
The 2002-2003 epidemic of Severe Acute Respiratory Syndrome (SARS) started in China and killed about one-tenth of the 8,000 it infected.
Still, there were few signs of panic in Shanghai with shops remaining open, and the strain does not appear to be transmitted from human to human.
"We have 14 cases in a large geographical area, we have no sign of any epidemiological linkage between the confirmed cases and we have no sign of sustained human-to-human transmission," said World Health Organization spokesman Gregory Hartl before the two new cases were confirmed.
"The 400 contacts are being followed up to see if any of them do have the virus, have had it from someone else," he told a news briefing in Geneva.
But Hong Kong authorities were taking extra precautions.
Additional staff would be deployed at immigration points to make random temperature checks of visitors in addition to the infrared full-body scanners already in place, Ko Wing-man, Hong Kong's food and health secretary, told reporters.
Vietnam banned imports of Chinese poultry.
In Japan, airports have put up posters at entry points warning all passengers from China to seek medical attention if they have flu-like symptoms.
In the United States, the White House said it was monitoring the situation and the Centers for Disease Control and Prevention said it had started work on a vaccine if it was needed. It would take five to six months to begin commercial production.
The U.S. Food and Drug Administration (FDA), which regulates medicines, said it was working closely with international and national health authorities.
"As part of the larger (U.S.) government response, FDA would also work with drug and vaccine developers to expedite development and availability of any potentially effective vaccines," a spokeswoman said.
With the fear that a SARS-like epidemic could re-emerge, China said it was pulling out the stops to combat the virus.
"(China) will strengthen its leadership in combating the virus ... and coordinate and deploy the entire nation's health system to combat the virus," the Health Ministry said in a statement on its website (www.moh.gov.cn).
The virus has been shared with WHO collaborating centres in Atlanta, Beijing, London, Melbourne and Tokyo, and these groups are analysing samples to identify the best candidate to be used for the manufacture of vaccine - if it becomes necessary.
Any decision to mass-produce vaccines against H7N9 flu will not be taken lightly, since it will mean sacrificing production of seasonal shots.
That could mean shortages of vaccine against the normal seasonal flu which, while not serious for most people, still costs thousands of lives.
Sanofi Pasteur, the world's largest flu vaccine manufacturer, said it was in continuous contact with the WHO through the International Federation of Pharmaceutical Manufacturers and Associations (IFPMA), but it was too soon to know the significance of the Chinese cases.
Other leading flu vaccine makers include GlaxoSmithKline and Novartis.
A spokesman for Swiss drugmaker Novartis said the firm was closely monitoring the virus and had begun initial preparations for developing a vaccine should one become necessary.
Preliminary test results suggest the new flu strain responds to treatment with Roche's Tamiflu and GSK's Relenza, according to the WHO.
Experts said more needed to done to determine the level of risk from the bird flu strain.
"H7s are viruses that mutate often so it could disappear as a result of mutation or it could become much more aggressive, so it is important to study every one of the viruses that we isolate in humans and in animals," Alex Thiermann, special advisor to the World Animal Health Organisation's (OIE) director general, told Reuters.