Spanish Prime Minister Mariano Rajoy’s People’s Party suffered heavy losses in local elections on Sunday, throwing his re-election later this year into doubt and opening the door for the anti-austerity Podemos party.
British banks with the most exposure to the euro zone, such as Royal Bank of Scotland, Barclays and Lloyds fell by 1.3 to 2.8 per cent.
The UK banking index dropped 1.1 per cent, but Asia-exposed banks suffered less, with Standard Chartered down 0.8 per cent and HSBC losing 0.6 per cent.
Oil and gas shares dropped sharply, with Royal Dutch Shell and BG Group both down two per cent after oil prices fell due to a stronger dollar.
The blue-chip FTSE 100 index slid 1.2 per cent to 6,948.99 points, the lowest close since May 12.