The TAIEX share index fell 21.48 points to finish at 5,717.28, extending its 1.5 percent loss last week. The weak Taiwan dollar, which slid to a 12-month low on Monday, also weighed on the market, analysts said.
The banking and insurance sub-index fell 1.38 percent as investors continued to worry over delayed mergers and acquisitions, and was pessimistic on whether the government can achieve its goal of halving the number of state-run banks.
"There have been mounting concerns that it won't be easy for the government to push through the reform," said Barro Liao, a fund manager at Prudential Securities Investment Trust. "We see little upside in bank shares unless a major breakthrough emerges."
State-run Taiwan Business Bank, whose privatisation plan was delayed by a workers' strike in September, fell 3.69 percent to T$7.82.
Cathay Financial Holding Co, Taiwan's largest financial holding company, slid 1.52 percent to T$58.50.
One financial stock that bucked the downtrend was Chinatrust Financial Holding Co Ltd, which gained 1.51 percent to T$26.95 on market expectations that the company will buy back some of its shares.
Perry Chang, an executive vice president at Chinatrust, said the company "does not rule out" the possibility of a share buyback following the recent plunge in its share price but details have not been finalised.
TOURISM SHARES Overall market turnover was slow at T$57.08 billion, less than T$67.25 billion in the previous session.
"There's barely any good news that can spark a rally in stocks anytime soon," said Calvin Tseng, an associate director at UBS Securities Taiwan.
"Looking into the next two weeks, the main index is likely to trade at a narrow range of 5,700 to 5,900 points."
The tourism sub-index outperformed, however, surging 5.94 percent after Taiwan's Mainland Affairs Council said over the weekend that China's top official in charge of tourism will visit the island this week.
Three hotel operators, First Hotel, Hotel Garden and Ambassador Hotel, rose the daily 7 percent limit on hopes of a revenue boost if Taiwan and China can strike a deal on how to open up visits to the island by mainland Chinese.
Some tech shares also rose on optimism over earnings in the run-up to the seasonal end-year boom.
Display screen maker AU Optronics Corp, which is scheduled to report third-quarter results on Tuesday, gained 1.16 percent to T$39.15.
Reuters Estimates forecast AU's third-quarter net profit at T$3.91 billion ($116 million), down from 5.3 percent a year ago but up sharply from T$470 million in the second quarter.
Taiwan Semiconductor Manufacturing Co Ltd jumped 2.24 percent to T$50.30 after Morgan Stanley raised its rating on the top contract chipmaker to "overweight" from "equal weight", saying the stock price had overstated concerns of worsening demand after the third quarter.
TSMC shares were also cheered by the better-than-expected results of smaller rival Chartered Semiconductor Manufacturing Ltd, which forecast a fourth-quarter profit last Friday.
Besides the heavyweight tech shares, GPS PDA maker Mitac International Corp was also actively traded. It dropped the daily 7 percent limit to T$42.35 after company president Francis Tsai said in a statement on the weekend that he planned to sell 1 million Mitac shares.
Fund manager Liao also said there were rising concerns over intensifying competition in Mitac's niche market of making personal digital assistants (PDAs) fitted with global position systems (GPS).
The over-the-counter market's TAISDAQ index was slightly lower, down 0.01 percent to close at 108.94, and TAIEX November index futures fell 0.4 percent to end at 5,712.