By Michael Perry

SYDNEY, Aug 28 (Reuters) - Security at the Asia Pacific leaders summit in Sydney next week was dealt a blow on Tuesday when the city's mounted police horses were diagnosed with equine flu, ruling out a major crowd control measure.

Six police horses in Sydney tested positive to equine flu and all horses at the inner-city police stables were placed under quarantine, said officials.

"That means they cannot be moved for up to two months," said New South Wales state Primary Industries Minister Ian Macdonald.

A nationwide ban on the movement of horses, meant to contain Australia's first outbreak of equine flu, may be extended for another two weeks, officials said. The ban would rule out moving mounted police horses from another state.

Australian police have said they are mounting the country's biggest security operation for the Asia Pacific Economic Co-operation (APEC) summit next week, which will be attended by 21 leaders, including U.S. President George W. Bush, Russian President Vladimir Putin and China's President Hu Jintao.

Thousands of police have been rostered onto the APEC security operations, which will include cutting Sydney's central business district in half by a 2.8-metre (9ft) concrete and wire security fence.

Demonstrators, such as the "Stop Bush Coalition", have promised peaceful protests during the summit, but have criticised police no-go zones and mobile detention buses.

The outbreak of equine flu meant mounted police "will not be part of the APEC security", police said in a statement.

"It won't stop us being able to protect dignitaries, the public or police at any planned protest," said NSW Deputy Commissioner Andrew Scipione.

"The police presence will be backed up by the new water cannon that has been purchased by the state government for use in crowd control," he said.

APEC accounts for 70 percent of global economic growth.

Members are Australia, Brunei, Canada, Chile, China, Hong Kong, Indonesia, Japan, Malaysia, Mexico, New Zealand, Papua New Guinea, Peru, Philippines, Russia, Singapore, South Korea, Taiwan (under the name Chinese Taipei), Thailand, United States and Vietnam.

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