UPDATE 1-European agency rules against stem cell patents

(Adds detail and background on human embryonic stem cells)

LONDON, Nov 27 (Reuters) - European regulators on Thursday ruled against allowing a patent on developing human embryonic stem cells, a decision that could stifle research by stem cell companies for commercial purposes.

An appeal panel at the European Patent Office upheld a June decision to reject a patent application regarding the use of stem cells filed by the Wisconsin Alumni Research Foundation in 1995.

Stem cells taken from days-old embryos work as a type of master cell for the body, capable of changing into many types of tissues and cells. They can live indefinitely in lab dishes, producing generations of new cells. Opponents call the research immoral because it requires the destruction of the embryo but advocates say it is an important route to explore for potential cures for conditions such as diabetes, Parkinson's disease and spinal cord injuries.

The problem for companies looking to profit from technology using stem cells is that without patent protection there is little incentive to pour money into research.

"European patent law prohibits the patenting of human stem cell cultures whose preparation necessarily involves the destruction of human embryos," the European Patent Office said in a statement.

"That is the decision reached by the Enlarged Board of Appeal of the European Patent Office (EPO)."

University of Wisconsin researcher James Thomson was the first to isolate human embryonic stem cells in 1988, a discovery which was later patented.

But that patent and others related to it held by the Wisconsin Alumni Research Foundation had been challenged.

The board's decision to uphold the earlier ruling could keep some companies from jumping into the sector and steer investors elsewhere.

In the United States, companies like Geron Corp (GERN.O) have been granted patents on certain types of human embryonic stem cell growth technology.

Experts are also pursuing various ways to create stem cells. Several teams said last year they had re-programmed ordinary skin cells to act like human embryonic stem cells, but stressed that many different approaches need to continue before anyone fully understands how to regenerate human tissue and organs.

(Reporting by Michael Kahn; Editing by Elaine Hardcastle and Jon Loades-Carter)