UPDATE 2-London's FTSE 100 gives in to fears over U.S.-Iran tensions

* FTSE 100 down 0.2%, FTSE 250 down 0.3%

* IQE drops as Huawei curbs hit revenue

* U.S.-Iran tensions weigh

* Domino's Pizza drops among midcaps (Adds company news items, updates share moves)

By Muvija M

June 21 (Reuters) - Britain's main stock index handed back gains on Friday as rises in oil majors driven by the potential for supply disruptions due to tensions in the Middle East were not enough to offset general gloom about a threatened U.S.-Iran military standoff.

The FTSE 100 edged 0.2% lower, with losses spread across most sectors, and the FTSE 250 midcap index was down 0.4%.

The oil and gas sector was a bright spot, with heavyweights Shell and BP gaining on the back of a jump in crude prices after a report that U.S. President Donald Trump had approved military strikes against Iran then pulled them back.

"Overtones of the trade conflict are, like the unseasonably wet weather in much of Europe right now, difficult to avoid and likely to put a dampener on things," City Index analyst Ken Odeluga said.

"The simmering and increasingly unpredictable U.S.-Iran stand-off has also chilled the week's revived cheer."

After a solid run during a week in which the U.S. Federal Reserve and the European Central Bank signalled more stimulus if the economy weakens, there seemed to be some profit taking in markets, CMC Markets analyst David Madden said.

The gains from the earlier in the week have placed the FTSE 100 on course for its best month since January, after it suffered its first monthly fall in May this year due to escalations in the U.S.-China trade war.

Keeping in mind the upcoming meeting between Presidents Donald Trump and Xi Jinping next week at the G-20 summit, Madden said there could be some more profit-taking ahead.

IQE Plc, which makes semiconductor wafers for chips, slumped 24.8% on its worst day since November after warning annual revenue would be lower than expected because U.S. restrictions on China's Huawei are affecting orders.

The alert dragged down European peers, and came after U.S. chipmaker Broadcom rattled the industry with a forecast that U.S.-China trade tensions and the curbs on Huawei would wipe $2 billion off its sales this year.

Another semiconductor firm, Nanoco, plummeted 74%, its biggest one-day drop on record, after it said a U.S. customer had informed it that its project with the company will not continue beyond their current contract.

Among midcaps, Domino's Pizza Group fell 3.7% after a frontrunner to replace its outgoing chief executive slapped down a media report that he would step into the role. Andrew Rennie insisted he was invested in his job as European head of Domino's Pizza Enterprises. (Reporting by Muvija M in Bengaluru; Editing by Catherine Evans)