The FTSE All-share fell by 18.91 points to close on 2954.94 following news of the latest bomb threat to the UK.
The FTSE 100 dropped 37 points to 5823.4 while the FTSE 250 suffered a 67 point fall to close at 9261.5.
The FTSE 100 fell dramatically in the morning to lose 1.8 per cent of its value but a gradual rally through the afternoon saw it close just 0.6 per cent down.
Airline stocks and travel groups were hit particularly hard by the news with British Airways shares losing more than five per cent of their value and EasyJet 2.1 per cent.
Car hire group Avis lost 5.2 per cent and InterContinental Hotels saw its shares down by 3.1 per cent.
Oil stocks also witnessed heavy selling over investor fears that the terrorist threat could lead to a reduction in demand for aviation fuel.