The two firms blamed government wrangling for the collapse of their £28 billion super-merger, which would have created the world's biggest defence and aerospace group.
BAE shares fell 4.5p or 1% to 320.9p, while the wider FTSE 100 Index closed 33.5 points lower at 5776.7 amid ongoing concerns over the global economic outlook.
The pound was up against the euro and US dollar at 1.24 and 1.60 respectively following reports the UK economy was expected to deliver its fastest pace of growth in more than two years in the third quarter.
Banking stocks surged in London as it emerged that capital and liquidity rules had been relaxed in an effort to stimulate lending. The Financial Services Authority has told banks they will not be required to hold extra capital against loans used in the Bank of England's "funding for lending" scheme.
Lloyds Banking Group was 4% higher, up 1.5p at 38.5p, and Royal Bank of Scotland cheered 5.4p to 262.7p. Barclays, which unveiled a deal yesterday to buy the UK savings and mortgage business of ING Direct, was 0.5p higher at 222p.
Elsewhere, global growth fears continued to dictate the market's performance after aluminium company Alcoa warned demand was lower than anticipated because of a slowdown in China. The cautious outlook, revealed by Alcoa at the start of the third-quarter earnings season, follows the International Monetary Fund's downgrade to growth forecasts. Silver miner Fresnillo was one of the biggest fallers in the top flight, declining by 47p to 1926p.
In corporate news, chocolate retailer Thorntons set a downbeat tone ahead of the festive season as it reported a 1.7% drop in store like-for-like sales in the 14 weeks to October 6. Shares were unaffected, however, as the stock rose 0.8p to 31.3p.
ASOS shares had a volatile session after the fashion retailer announced the appointment of former Marks & Spencer executive Kate Bostock to the company's board. Shares rose 4p to 2290p after falling into the red early in trading.
The biggest Footsie risers were Lloyds Banking Group, Royal Bank of Scotland, United Utilities up 11.5p at 729p and Tate & Lyle ahead 5.5p at 688.5p.
The biggest fallers were ARM Holdings, down 17p at 578.5p, Vedanta Resources off 30p at 1060p, Smith & Nephew, down 17.5p at 655p and IMI, off 23.5p at 920p.