WRAPUP 3-WHO chief warns H1N1 swine flu likely to worsen

* Chan says H1N1 could mutate in "unpredictable ways"

* Japan relaxes flu measures, but prepares big aid project

* U.S. gives companies $1 billion to start vaccine

* Gene analysis shows virus lurked undetected

(Updates with vaccine news and genetic studies)

By Laura MacInnis and Stephanie Nebehay

GENEVA, May 22 (Reuters) - The world must be ready for H1N1 swine flu to become more severe and kill more people, World Health Organization chief Dr. Margaret Chan said on Friday.

A genetic analysis of the new virus showed it must have been circulating undetected for some time, in pigs or perhaps in other animals.

The WHO is poised to declare a full pandemic of the virus, which has infected more than 11,000 people in 42 countries and killed 86. And U.S. health officials released $1 billion for companies to get started on a vaccine in case it is needed.