Xattle prices at the Chicago Mercantile Exchange (search) sank as much as the daily allowable trading limit Monday morning on fears that a potential new case of deadly mad cow disease (search) in the United States will hit beef demand.

Late Friday, after CME markets closed, the U.S. Agriculture Department (search) reported that a cattle carcass had tested as "inconclusive" for mad cow disease. A second round of more precise testing was ordered, and officials said Friday that the new test results would be available in four to seven days.

"It will cap any rallies for a few days," said Jim Brooks, CME livestock floor manager with brokerage R.J. O'Brien.

"If it's negative, we could bounce back right away. A lot of people were surprised we haven't seen an inconclusive before now. We could see one every two to three weeks," he said.

Live cattle futures were trading 2.600 to 1.800 cents per lb lower, with June cattle down 2.475 cents at 87.125 cents after opening down the 3.00-cent daily allowable trading limit.

CME feeder cattle were down 1.800 cents to 3.000 cents a lb, with August cattle down 3.000 cents, the daily allowable trading limit, at 111.150 cents.

The first U.S. case of the deadly brain-wasting disease, known as bovine spongiform encephalopathy (search) or BSE, was confirmed in a Washington state dairy cow last December.

That triggered a global ban on U.S. beef imports that cost U.S. cattle farmers a $3 billion annual market overnight.

A USDA spokeswoman said on Monday that an exact timetable could not be given for results of the retest. USDA officials said on Friday said it was "very likely" the animal would turn up as healthy on a retest at USDA's lab in Ames, Iowa.

Friday's possible positive test result was the first "inconclusive" result for BSE since USDA began using the rapid tests on June 1 as part of a program to test more U.S. cattle.

The department is retesting the animal's brain samples using the more sophisticated immunohistochemistry test at its animal health laboratory in Ames.

USDA has refused to say if the slaughtered animal is a bull, steer, heifer or cow, to give its age or to identify what state it is in. But U.S. cattle industry officials praised the department's handling of the latest incident.

"USDA's decision to announce this inconclusive result at this time shows a commitment to transparency," National Cattlemen's Beef Association chief executive officer Terry Stokes said in a statement.

"Until everyone knows where the animal came from and what type of animal (it is), this will have an impact on the markets," he added.

The infected dairy cow in the December Washington state case originated in Alberta, Canada, where a case of BSE had been reported in May, 2003. Scientists believe cattle catch the disease from infected feed. More than 140 people have died in Europe from eating BSE-infected beef.

"Regardless of whether the final test confirms negative or positive, however, the food supply remains safe because BSE has never been found in the meat we meat," J. Patrick Boyle, president of the American Meat Institute, said in a statement.

"All parts from all cattle that could contain BSE are uniformly removed and eliminated from the human food supply at processing," Boyle said, referring to brain and spinal cord tissues thought to contain the misshapen proteins causing BSE.

The Commodity Futures Trading Commission said on Monday it was closely watching cattle futures trade after the news. CFTC set a probe of CME cattle trading last December after the Washington state BSE case was announced, and that investigation is still underway.