By Michael Smith

LONDON, Aug 10 (Reuters) European airlines cancelled hundreds of flights into London on Thursday following a foiled bomb threat which sparked a security alert at UK airports and pummelled airline stocks.

Airlines banned hand luggage on flights out of the United Kingdom and warned of severe delays at London's Heathrow Airport after British police said they had disrupted a plot to blow up aircraft in mid-flight.

British Airways said it was temporarily halting all short-haul flights to and from Heathrow Airport. Passengers were told to stay away from the airport because of severe congestion and delays caused by heightened security checks.

BA led European airline stocks lower, falling 3.6 percent to 376 pence by 0925 GMT. Air France KLM was 2.7 percent lower at 19.22 euros and Germany's Lufthansa was off 3.2 percent at 14.18 euros.

Lufthansa, Air France KLM, Spain's Iberia and Greece's Olympic Airlines said all flights scheduled for Heathrow had been grounded until at least 1000 GMT. Alitalia also cancelled some flights.

''There are serious problems at Heathrow and the airport is completely saturated and we cannot land planes there,'' an Air France spokeswoman said.

Lufthansa said 22 flights to Heathrow with about 3,000 passengers had been cancelled until 1200 GMT.

Airlines as far away as Australia were affected. Qantas Airlines said it was limiting carry-on luggage for its flights from Britain and banning liquids on U.S.-bound flights.

Low-cost carriers also said they were stepping up security.

Shares in Europe's biggest budget carrier Ryanair were down 3.3 percent at 7.3 euros in Dublin at 0908 GMT. EasyJet fell 2.5 percent to 412-1/4 pence.

Spain's Ferrovial, which bought UK-based airport operator BAA Plc earlier this year, was down 2.6 percent at 60.65 euros.

''What it just does is remind people that, apart from the oil price being all over the place, and that's their major variable cost, airlines have got no control over the economic or political reasons that might make people fly or not fly,'' said Andrew Bell, equity strategist at Rensburg Sheppards.

Airport operator BAA said it had asked airlines to temporarily halt all in-bound flights from Europe. It had no plans to close Heathrow but warned of severe delays.

The ban on hand luggage included mobile phones and handbags, as well as all liquids except for essential medicines. Milk for babies would be allowed on board but must be tasted by the accompanying passenger, BAA said in a statement.

REUTERS SKU DS1546