Barclays dropped 5.4 percent after top shareholder Qatar Holdings cashed in its remaining warrants in the UK bank, a move which led to the sale of up to 303.3 million shares.
Bookrunners Deutsche Bank and Goldman Sachs said the Barclays shares were sold at 244 pence each, a 4 percent discount to Friday's closing price, but did not confirm whether all the stock had been sold.
With the stock trading at a shade under 244 pence, we are seeing renewed long interest with some traders taking the view that this sharp pullback offers a buying opportunity and adding further long holdings to their portfolios, Rik Thakrar, risk manager and senior dealer at Spread Co., said.
Overall, banking was the weakest blue chip sector, knocking over 11 points off the FTSE 100 index. The sector, though, showed little reaction to the surprise news of the appointment of Bank of Canada chief Mark Carney as the next governor of the Bank of England.
UK finance minister George Osborne said Carney brought the skills to revamp financial regulation at a time when the BoE will take on a new role in charge of British bank supervision.
Aside from the drop by Barclays, RBS fell 3.2 percent on concerns it could receive separate fines for its alleged involvement in the Libor-fixing controversy, one from the UK's Financial Services Authority and one from U.S. regulators, according to the Sunday Telegraph.
Fund manager Aberdeen Asset Management was also weak, dropping 2 percent in the absence of news of any immediate plans for buybacks or a special dividend. The fund house reported its net cash reserves had more than doubled in the last 12 months as it posted an 11 percent rise in full-year revenues.
With a net cash balance in excess of our expectation, we believe that the company could signal its willingness to enhance shareholder returns through the distribution of excess capital to shareholders, RBC analysts said in a note.
Risk-sensitive commodity stocks also fell back, with miners and energy stocks retreating after posting gains last week, accounting for more than 5 points of the FTSE 100's decline.
The UK blue chip index closed down 32.42 points, or 0.6 percent, at 5,786.72, having risen 3.8 percent last week and posting five straight days of gains for only the third time this year.
Trading was modest, at around 80 percent of the FTSE 100's average 90-day daily volume, as investors awaited the outcome of a euro zone meeting to attempt to agree another bailout payment for Greece.
We are seeing a general sense of apathy from investors as the recent rally was built on weak foundations. Despite the abundant optimism that a solution to the U.S. fiscal cliff will be found on time, as we edge closer towards it, nerves and volatility will increase. Savvy investors will no doubt remain on the sidelines, Mike McCudden, head of derivatives at Interactive Investor, said.
U.S. blue chips were down 0.8 percent by London's close, as investors awaited the news on Greece and as negotiations continued in Washington on a deal to avoid the U.S. fiscal cliff of automatic tax increases and government spending cuts, scheduled to come into force on Jan. 1.
Among the minority of blue chip gainers, stocks perceived as more defensive found support, led by the tobacco, utilities and household products sectors, as risk appetite faded.
Real estate firm British Land was also in demand, adding 0.4 percent as UBS upgraded it to buy from neutral.