Sentiment also remained downbeat as investors took profits from last week's surge, which was rooted in hopes of a public spending splurge under US President Donald Trump.
US stocks spent the whole day in the red, with analysts pointing to a variety of concerns, including the lack of progress on Trump's economic agenda and the prospect of the Federal Reserve raising interest rates next week.
"President Trump switching gears from a conciliatory speech to accusing (former president) Barack Obama of wiretapping unwinds some of the cross-party good feelings that could have helped pass tax and spending reform policies," said Jasper Lawler, senior market analyst at London Capital Group.
The announcement marked a U-turn for CEO John Cryan, who until recently insisted no such move was needed.
There was fallout across the European financial sector.
Royal Bank of Scotland (LSE: RBS.L - news) shares shed 2.6 percent and Barclays (LSE: BARC.L - news) gave up 1.9 percent in London, while BNP Paribas (LSE: 0HB5.L - news) and Societe Generale (Swiss: 519928.SW - news) dropped 1.0 percent and 2.0 percent respectively in Paris.
London won a partial boost, however, after British financial services group Standard Life (LSE: SL.L - news) agreed to buy Aberdeen Asset Management (Frankfurt: 899502 - news) for £3.8 billion ($4.7 billion, 4.4 billion euros) to create one of the world's biggest fund managers.
The combined business will have a stock market capitalization of £11 billion and oversee assets worth £660 billion -- making it one of the largest investment managers in the world and the biggest in Britain.
The news sent Standard Life's share price 5.7 percent higher, while Aberdeen stock gained 4.4 percent.
Shares in French carmaker PSA revved 2.7 percent higher after it announced the acquisition of General Motors (NYSE: GM - news) ' European subsidiary, which includes the Opel and Vauxhall brands, for 1.3 billion euros.
The move sees PSA regain its position as Europe's second-largest automobile manufacturer, after Germany's Volkswagen (IOB: 0P6N.IL - news) , overtaking rival French firm Renault (LSE: 0NQF.L - news) .
Shares in GM fell 0.8 percent in New York after disclosing that it will take a charge of up to $4.5 billion mostly due to pension expenses associated with the transaction.
In Asia, Tokyo stocks fell and the safe-haven yen advanced after North Korea fired four missiles -- three of them landing in Japanese waters -- fueling fresh geopolitical concerns.
Japan Prime Minister Shinzo Abe warned the threat from North Korea had "entered a new stage" following the missile launch, which came after Pyongyang fired a rocket last month.
But Asia's other markets started the week with gains after another positive lead from Wall Street and remarks by Federal Reserve boss Janet Yellen signaling US interest rates could rise this month as the economy continues to improve.
Hong Kong stocks rose 0.2 percent and Shanghai finished 0.5 percent higher.
- Key figures around 2200 GMT -
New York - Dow: DOWN 0.2 percent at 20,954.34 (close)
New York - S&P 500: DOWN 0.3 percent at 2,375.31 (close)
London - FTSE 100: DOWN 0.3 percent at 7,350.12 points (close)
Frankfurt - DAX 30: DOWN 0.6 percent at 11,958.40 (close)
Paris - CAC 40: DOWN 0.5 percent at 4,972.19 (close)
EURO STOXX 50: DOWN 0.5 percent at 3,388.09
Tokyo - Nikkei 225: DOWN 0.5 percent at 19,379.14 (close)
Hong Kong - Hang Seng: UP 0.2 percent at 23,596.28 (close)
Shanghai - Composite: UP 0.5 percent at 3,233.87 (close)
Euro/dollar: DOWN at $1.0582 from $1.0619
Pound/dollar: DOWN at $1.2236 from $1.2292
Dollar/yen: DOWN at 113.90 yen from 114.05 yen
Oil - West Texas Intermediate: DOWN 13 cents at $53.20 per barrel
Oil - Brent North Sea: UP 11 cents at $56.01 per barrel