European shares fell on Monday, weighed down by uncertainty over Britain's decision to leave the European Union, but the Madrid market rose after Spain's election.

The pan-European STOXX 600 and the FTSEurofirst 300 indexes both fell by 0.6 to 0.7 per cent. The euro zone's blue-chip Euro STOXX index was flat.

Britain's FTSE 100 fell 0.4 per cent, after dropping 3.2 per cent on Friday, the day following the referendum where Britain voted to quit the EU.

However, Spain's IBEX rose 2 per cent. Weekend elections delivered a hung parliament for the second time in six month, but acting Prime Minister Mariano Rajoy's People's Party did better than expected, encouraging investors who support the party's economic reforms.

Spain's 10-year government bond yield slid 10 basis points. Spanish bank Bankia rose 13 per cent and Caixabank gained 5.8 per cent.

“The Spanish vote was a great result. It was good to see that the People's Party won a greater share of the vote,” said Francois Savary, chief investment officer at Geneva-based fund management and consultancy firm Prime Partners.

In Britain, Finance Minister George Osborne pledged to implement “robust” contingency plans with the Bank of England and sought to calm nerves, but British bank stocks remained under pressure. Royal Bank of Scotland lost 9.3 per cent and Barclays fell 7.7 per cent.

Some fund managers are avoiding the market for now.

“This Brexit decision has taken the markets by total surprise. I would remain on the sidelines - no reason to step in yet,” said Hampstead Capital hedge fund manager Lex Van Dam.

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