Shares in EADS rose sharply and those in BAE Systems fell on Tuesday, with three traders attributing the move to a report by German news agency DPA that merger talks between the two companies had collapsed.
The DPA report cited sources close to the negotiations.
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A source close to EADS told Reuters that the DPA report was wrong.
EADS shares rose as high as 26.85 euros a share before ceding most of their gains to trade up 0.2 percent on the day at 26.30 euros by 1143 GMT (0743 EDT). Shares in BAE, meanwhile, were down 1 percent at 323.1 pence, off their earlier low of 320.9 pence.
(Reporting by London markets team)