By 1209 GMT, the FTSE 100 was down 37.87 points, or 0.7 percent, at 5,706.09, after it fell 1.4 percent on Friday.

"Is it the natural disaster that we've got clouding the markets, or is it just Goldman Sachs so (investors are saying) look, this is a catalyst for profit taking? I think it's probably the latter, because it started on Friday night," said Mike Lenhoff, chief strategist at Brewin Dolphin.

Banks were the biggest drag on the blue chips, extending Friday's sharp decline, with HSBC, Barclays and Standard Chartered off 1.1 to 1.5 percent.

Goldman Sachs shares dropped on Friday after the U.S. bank was charged with fraud in the structuring and marketing of a debt product tied to subprime mortgages.

Investors were unsettled by worries the move could increase the chances of tougher reform of financial regulations, with the case seized on by politicians in the U.S. and Europe as a reason for closer scrutiny or tighter rules for banks.

But Royal Bank of Scotland, which is majority-owned by the British government took on 2.9 percent, the top blue chip riser, adding to gains it made on Friday when BofA Merrill Lynch hiked its target price and added the stock to its Europe 1 investment list.

Citigroup rose 3.3 percent in premarket trading on Monday after the company reported its first-quarter results.

Mining stocks weighed heavily on the FTSE 100 as metal prices dropped as the Goldman allegations rippled through markets, denting investor appetite for risk.

Kazakhmys, Vedanta Resources and Antofagasta were the worst off, shedding 2 to 2.5 percent.

Energy stocks were hit as crude dropped below $81 a barrel, against the backdrop of dampened risk appetite and as European flights remained disrupted, curbing jet fuel use.

BP, BG Group, Cairn Energy and Tullow Oil slipped 0.6 to 1.1 percent.

TRAVEL TURMOIL

Airlines and travel companies were pressured as the huge ash cloud from an Icelandic volcano kept airspace over most of Europe closed for a fifth day.

Tour operator Thomas Cook was the biggest blue chip faller, off 4.4 percent, while British Airways dropped 3.3 percent and mid cap easyJet fell 4.3 percent.

TUI Travel shed 3.8 percent, with Charles Stanley downgrading it to "hold". TUI said the crisis had so far cost it around 20 million pounds in lost revenues and that its estimated daily costs would run at 5 to 6 million pounds thereafter.

Against a background of heightened risk aversion, defensive stocks were in demand. Cigarette firm British American Tobacco put on 0.5 percent, while drugmaker AstraZeneca, helped by an upgrade to "neutral" from Exane BNP Paribas, put on 0.1 percent.

BT Group was a big riser, up 1.1 percent after JPMorgan upgraded its rating for the telecoms operator to "overweight" from "neutral", saying operational momentum was underappreciated and pension concerns overdone.