Kleinwort has regarded BAe as a buy for the past three years. With the shares hitting a peak on Friday the securities group felt obliged to withdraw its buy recommendation.
Kleinwort's negative approach contrasts with other investment houses. There is a strong feeling in many quarters that BAe could, with the Orange mobile telephone flotation likely to provide further inspiration, move even higher.
But it was a poor day for most shares with the stock market suffering its sharpest reverse for seven weeks.
It was almost as if last week's record-breaking heroics had drained the market's energy. In lacklustre trading the FT-SE 100 index fell 34.7 points to 3,746.6 with the failure of the expected big takeover bid to appear and a dull New York display responsible for much of the damage.
Yet, although the mood was cautious, takeover speculation was not completely snuffed out. British Gas, as bid hopes mingled with talk of management changes, outpaced other blue chips with a 6p move to 244.5p.
Pearson, the banking and media group, put on 15p to 670p on US take over hopes and Mirror Group Newspapers was also drawn into the bid arena with a 4p gain to 195p, a 12 month high.
British Airways' slower traffic growth lowered the shares 19p to 502p and the signalled Orange share sale and Cellnet price reductions depressed Vodafone, off 6.5p to 237.5p.
Standard Chartered, the banking group, lost 14.5p to 635p and Yorkshire Electricity 8p to 744p, as the rumoured bids failed to appear.
Oriel, an insurance broker, did manage to produce a little takeover excitement. Its admission that talks were on justified a 15p gain to 126p. CentreGold was suspended at 37p after its long-running bid talks seemed near fruition.
Bardon, the aggregates group, firmed to 40p despite reported denials from Camas that it was the rumoured bidder. Camas shaded to 83p.
Supermarkets had a cut-price session as profit downgradings wafted around. Evidence is growing that the current price war is not as phoney as some cynics maintain. The four leaders gave ground and Frost, the petrol retailer caught in the cross-fire of the forecourt battle between supermarkets and oil giants, lost a further 9p to 115p, lowest since 1992.
Zeneca recovered some of its poise after Friday's fiasco when at one time the shares were down 70p on wild rumours of problems with its asthma drug. The price firmed 3p to 1,248p.
A presentation at Panmure Gordon, the stockbroker, left ML Laboratories 18p off at 436p. Smith & Nephew added 2p to 180.5p, rekindling takeover hopes.
Reuters, with an estimated pounds 800m in the bank, fell 9p to 630p despite a revival of stories it plans a share buy-back.
Pan Andean Resources, seeking oil in Bolivia, rose 4p to 36p. The shares were 12.5p last year. Ennex International, a gold miner, added 2p to 14p helped by the firmer gold price. Bakyrchik Gold, seeking the metal in Russia, was also up, 11p at 501p.
Middlesex, the metals group, edged ahead 0.25p to 8.25p as it landed a $300m deal with Russia's most automated steel works. The link confirms Sir David Alliance's deeper involvement. He will have a 24.5 per cent stake in the Middlesex subsidiary set up to handle the deal. There is talk Middlesex has a more intriguing announcement in the pipeline.
Norcor, a maker of corrugated steel board for the packaging industry, rose 3p to 82p as Australian Pratt Industries picked up a 7.63 per cent shareholding.
Omnicare, a provider of home health-care, held at 84p. Stockbroker Astair & Partners forecast profits of pounds 750,000 next year.
Danka Business Systems, largely US owned, gained 11p to 640p. Ahead of a US offering it is holding investment presentations.
Continental Foods, interim figures tomorrow, gained 6p to 83p.
WT Foods held steady. Formerly called West Trust, the company has a range of overseas foods, particularly Caribbean, Indian and Mexican. There are suggestions that it is involved in talks which could, in effect, lead to a reverse take over by an unquoted food group which has decided to avoid a straightforward share flotation.