Banks retreated after a major shareholder sold its holding in Barclays, while energy stocks gave up some of their recent gains on backtracking crude prices, denting the FTSE 100 early on Tuesday.
By 0754 GMT Britain's leading share index was down 51.20 points, or 1.1 percent at 4454.49 percent after advancing 2 percent on Monday to its highest close since early January.
Barclays headed the list of blue-chip laggards, down 13 percent at 274.75 pence after the Abu Dhabi government-owned International Petroleum Investment Company (IPIC) said it intended to dispose of shares in Barclays.
Traders said the shares are being placed at 267 pence each. Barclays declined to comment.
"The news from Barclays is knocking banks and commodity stocks are retreating, but there's also a bit of profit taking after the gains yesterday," said Tim Hughes, head of sales trading at IG index.
Also weighing on banks, American Express Co and JPMorgan Chase & Co fell in after-hours trading on Wall Street after the banks unveiled plans to raise further equity.
HSBC, Standard Chartered, Royal Bank of Scotland and Lloyds Banking Group fell 1.6 to 3.7 percent.
Energy stocks, one of the main drivers of the gains the previous session, also weighed on the index as crude fell back after a six days of gains.
BP, Royal Dutch Shell, BG Group, Tullow Oil fell between 0.5 and 1.7 percent.
KINGFISHER FLIES
Europe's biggest home improvements retailer Kingfisher was the strongest blue-chip gainer, up 7.5 percent after it beat forecasts with a 40 percent jump in first-quarter profit as its B&Q stores in Britain benefited from warm weather.
Peer Home Retail also got a boost from the results, up 3.8 percent, while other high street stalwarts Marks & Spencer and Sainsbury gained 0.5 and 1 percent respectively.
U.S. April pending home sales numbers will be the main macro focus on Tuesday, although domestically Bank of England consumer credit for April and mortgage lending figures due out at 0830 GMT will also be of interest.
Martin Jacomb, the one-time deputy chairman of Barclays and director of the Bank of England, said the Financial Services Authority should be absorbed into the central bank, as the current financial stability regime is a "disaster", the Financial Times said.
Meanwhile a UK parliamentary committee also said the task of maintaining financial stability in Britain should be removed from the FSA and handed back to the Bank of England.
