"Not a great start to the week. There is a lot going on for banks, especially in the light of a low-growth environment and the backdrop in the euro zone not improving," Mike Lenhoff, chief strategist at Brewin Dolphin, told Reuters.
Investors also sold euros, buying gold and US dollars instead.
The euro dropped 0.7 per cent against the greenback after German Chancellor Angela Merkel's Christian Democratic Union was defeated in an election in her home state, yet another indication voters are unhappy about her efforts to deal with the European debt crisis and reject plans to use more taxpayer money to help solve the problems of countries including Greece and Ireland.
"Merkel's problem is that she fails to generate confidence in her policies and those of her coalition partner," Gero Neugebauer, a political science professor at the Free University in Berlin, told Bloomberg. "It's about the consistency of her statements" on bailouts for indebted euro countries.
The US currency strengthened 0.66 per cent against a basket of its major counterparts.
Investors are eyeing a German constitutional court ruling on Wednesday on claims that Berlin is breaking German law and European treaties by contributing to bailouts for Greece, Ireland and Portugal, according to Reuters.
The court is not expected to rule against the contributions, but may add stipulations for dealing with future requests that will complicate the region's bailout plans.
"People are pricing in the risk of European meltdown, rather than the likely outcome," Ian King, head of international equities at Legal & General, told Reuters.
Against this backdrop, Group of Seven financial leaders are likely to agree later this week to keep monetary policy loose. The G7's finance ministers and central bankers meet on Friday in Marseilles, France to discuss potential to bolster the slowing global economy.
Before then however, central bankers are meeting in Australia, Canada, the UK and Europe and may offer investors more perspective on the global outlook.
