London’s blue chip index closed down 33.54 points, or 0.6 per cent, at 5,776.71 as volumes on the index remained light as whole, just 88 per cent of its already weak 90-day average.
BAE fell 1.4 per cent in heavy volume after its £30bn merger talks with Airbus parent EADS collapsed, and it said it is not looking for a tie-up with another company.
Analysts said the deal had always looked a big ask and that had limited new selling of the company's shares.
“This does not come as a surprise ... For BAE Systems, the investment case returns to extracting value in a squeezed operating environment,” Brewin Dolphin's equity analyst Ed Salvesen said in a note.
The broader FTSE 100 has traded in a 170-point range since mid-September when the US Federal Reserve joined the European Central Bank in providing a backstop for the market by promising measures to tackle the economic slowdown.
UK-focused banks clung onto gains yesterday. Lloyds Banking Group was up four per cent and RBS added 2.1 percent after reports that the Financial Services Authority was relaxing capital and liquidity rules in an effort to stimulate the economy.
Man Group rose 3.8 per cent, but was off session highs, amid speculation that a US bidder will soon come calling for the fund manager.