DHAKA (Reuters) - In less than a year, bird flu has spreadto nearly half of Bangladesh's 64 districts, threatening thelivelihoods of millions of people reliant on the poultryindustry and driving up food prices.

Health experts blame official neglect and lack of timelyaction to contain the bird flu virus, which continues to spreadin Bangladesh and the neighboring Indian state of West Bengal.

Battling ignorance among millions of farmers is anotherworry, the experts say.

"Many villagers still hold their dead chickens with barehands and throw them away without burying them. That helpsspread the disease," said a health official in Barisal districton the coast.

Abdur Rashid, a surgeon in the flu-hit coastal districtBhola, said authorities had been distributing leaflets aboutbird flu but many villagers had ignored the warnings.

Some farmers also tried to sell sick chickens because thecompensation paid by authorities was often too low.

"They can sell a chicken for 130 to 150 taka ($1.90 to$2.20), while they get around 80 taka in compensation thatoften takes a long time to get," a poultry owner said.

Touching or eating sick poultry is the most common way tobecome infected by the H5N1 bird flu virus that has killed morethan 220 people globally since late 2003.

So far, no human infections have been reported inBangladesh, a densely populated nation with millions ofbackyard poultry and thousands of chicken farms.

CRITICAL SITUATION

"Now we are facing a critical situation, as bird flu struckat a time when commodity prices from rice, flour to milk powderand edible oil had already nearly doubled," said Shahedul Alam,a government employee.

Chicken prices in markets in the capital dropped 25 percentover the past two weeks, selling at 80 taka per kg, while theprice of eggs has fallen 20 percent or more.

"I have stopped buying chickens and instead I get fish. Toreplace eggs, we have started taking more vegetables,"housewife Ayesha Begum said on Friday at Dhaka's Kawranbazarmarket.

The government says it is doing all it can to fight thevirus.

"The government has taken aggressive measures to stop thespread of the disease and the situation is still undercontrol," Salehuddin Khan, a director of the government'slivestock directorate, told Reuters.

Yet the virus has spread of nearly 100 poultry firms in 30districts. More than 350,000 chickens and ducks have beenculled since March last year.

It is a major blow to the poultry industry, which is worthnearly $1 billion. More than 4 million people are involved inpoultry farming and many have no other job to earn a living,industry officials say.

In the past six months, nearly 40 percent of Bangladesh's150,000 poultry farms have closed because of the fallingchicken and egg prices, poultry owners say.

Livestock and health ministry officials say 225,000volunteers have been deployed to tighten surveillance and alertsecurity forces along the borders with India and Myanmar.

All vehicles carrying poultry would also be sprayed withdisinfectant before entering any urban area. Vehicles arrivingin Bangladesh from India would also be sprayed, they said.

Late last month, the U.N.'s Food and AgricultureOrganisation said the virus "appeared to be endemic in thecountry, and surveillance and control campaigns have so far notsucceeded in interrupting virus transmission betweenprovinces."

Livestock officials said bird flu was still spreading andhad resurfaced in the Feni district southeast of Dhaka. Thegovernment has ordered culling of all chickens and ducks in onekilometer radius surrounding all affected farms.

"Sometimes we are neglecting people to save the poultryindustry. We have to choose priority. There is no other optionbut to destroy chickens," said a virologist, who asked not tobe identified.

(Writing by Anis Ahmed; Editing by David Fogarty and AlexRichardson)