Airline and travel shares have taken a hit across the globe after UK police said they had disrupted a plot to blow up planes flying between the UK and US.
Adding up the cost of the security alert will take time, analysts said
Security at all UK airports has been tightened and flights cancelled, while the US has raised its security alert on passenger planes to its highest level.
Oil prices also fell sharply on fears the news will curtail travel in coming months, cutting demand for fuel.
The price of a barrel of US light sweet crude sank $2.35 to settle at $74.
The UK's benchmark FTSE 100 index closed 37.1 points down at 5,823.4 - led lower by a 5.06% drop in British Airways.
BA said it was too early to estimate the cost of the disruption, which comes during the key school holiday season. The airline cancelled all domestic and European flights in and out of Heathrow.
But in the US, investors managed to shrug off terror fears, with analysts expecting the effect of the current crisis to be short-lived.
After a jittery start, the benchmark Dow Jones Index closed 48.19 points ahead at 11,124.37
The three US airlines targeted by the terror plot all plunged in early trade but later recovered most of their losses.
Continental Airlines ended 35 cents lower at $23.86, while United's parent UAL dropped 31 cents to $23.52. Meanwhile, American Airlines' owner AMR closed unchanged at $28.88
British Airways, airline: 5.06% lower
Ryanair, budget airline: 1.46%
MyTravel, travel firm: 2%
Ferrovial, owner of airport operator BAA: 1.53%
Alpha Airports, duty free operator: 0.78%
The Department for Transport has issued new security measures for UK airports, under which passengers are not allowed to take any hand luggage on to any flights originating in the UK.
The timing of the alert has come just as the global tourism industry has been pulling itself out of a trough prompted by earlier terrorist attacks, an outbreak of the deadly SARs virus and the Asian tsunami.
VisitBritain, a group that promotes the UK as a holiday destination, estimated that last year's July bomb attacks in London cost the economy as much as £750m in lost revenues.
It added that the current problems would probably not reach those levels, as consumers were proving increasingly resilient in the face of dangers.
However, consultancy firm Grant Thornton estimated that the airport disruption could cost the UK economy at least £10m per day.
The CBI business group also warned that the grounding of flights could hit the tourist sector.
"Tourism is a huge industry in the UK and people not coming in will have an effect on UK tour operators," the CBI said.
In addition to tourism, the security alert has also hit business travel and related industries such as taxi firms.
AIR BUSINESS FACTS
Three-quarters of all visitors to the UK arrive by air
Spending by those visitors accounts for 1% of the UK's annual economic output
The UK exports £7bn worth of goods by air outside of the EU
Henk Potts, equity strategist at Barclays Stockbrokers, said that the security alert highlighted the "risks in investing in the airline sector".
However, he added that "markets tend to be pretty resilient".
"When we have seen events in the past, such as the London attacks, stocks have bounced back ... investors and analysts will now be waiting to see the depth of issues," he said.