The FTSE 100 Index struggled to keep above the 5100 mark and closed 46.55 points down at 5109.40, after the US Commerce Department said durable goods orders only rose 0.3 per cent last month, much worse than the 2.8 per cent growth forecast.
Excluding transportation equipment, new orders posted their largest decline in one and a half years, according to the report that pointed to a slowdown in manufacturing.
The Commerce Department said durable goods orders rose 0.3 per cent after a revised 0.1 per cent fall in June. Excluding transportation, orders dropped 3.8 per cent – the biggest fall since January 2009 – after rising 0.2 per cent in June.
Analysts polled by Reuters had forecast orders increasing 2.8 per cent last month from June's previously reported 1.2 per cent fall. Orders excluding transportation had been forecast to increase 0.5 per cent from a previously reported 0.9 per cent fall.
As the London market closed, Wall Street's Dow Jones Industrial Average, which on Tuesday dipped below the 10,000 mark for the first time since early July, was down by just under 1 per cent at 10033.
Traders' confidence has been shaken by a string of troubling updates on the US economy, including dismal home sales figures on Tuesday.
The world's biggest economy will be further tested this week with the release of figures on consumer confidence and revised second quarter GDP, as well as the latest speech on the state of the economic recovery from Federal Reserve chairman Ben Bernanke.
The mood in Japan was also uncertain after figures yesterday showed the country's exporters were feeling the pinch after demand from overseas customers slowed for the fifth consecutive month in July. The Nikkei 225 fell by almost 2 per cent overnight.
The poor economic figures from the US saw the pound rise against the US dollar to 1.54. The pound was also up against the euro at 1.22.
The fallers' board in London featured a number of resources-based stocks as investors continued their flight from risk.
Tullow Oil closed 59p down to 1238p after a lacklustre reception to first-half results while Antofagasta fell 341/2p to 9771/2p and BP extended the losses seen in recent days with a decline of 23/8p to 3751/8p.
Stocks on the way up included some of those with half-year results out yesterday.
The biggest rise in the FTSE 100 Index came from support services firm Serco after its adjusted profits improved 19 per cent to 110.2m and it said it stood to benefit as many government and commercial customers looked to reduce costs.
The half-year figures were in line with expectations and caused the company's shares to rise 27p to 5861/2p, a gain of 5 per cent.
Car insurer Admiral Group was another blue-chip riser, after it reported a 21 per cent rise in pre-tax profits to 126.9m in the first six months of the year.
The figures were better than expected and resulted in shares rising 3 per cent, or 39p to 1512p.
Temporary power firm Aggreko was not so fortunate as it sunk to the bottom of the London market, fading 83p to 1346p.
The stock, which has risen sharply in the last year, was under pressure despite posting a 50 per cent hike in its dividend and forecasting higher than expected profits.
The biggest Footsie risers were Serco, Admiral, Centrica up 41/4p to 3247/8p, and Severn Trent, ahead 13p to 1301p.
The biggest Footsie fallers were Aggreko, Tullow Oil, Barclays, down 111/8p to 298p, and Antofagasta.