London shares fell in opening trade on Monday as news that fewer than expected European banks failed stress tests was tempered by fears US lawmakers will not agree a budget that will help avoid a catastrophic default.
The FTSE 100 index of leading companies was down 0.76 percent at 5,799.51 points in early deals.
The European Banking Authority said on Friday that eight lenders -- including five from Spain and two from Greece -- out of 91 had failed to meet the capital requirements it deems essential to act as a buffer against any unforeseen financial shocks.
The EBA said the banks, which also included one from Austria, had a total shortfall of 2.5 billion euros ($3.5 billion), while the total number of failures was less than expected by markets.
Friday's announcement, however, was tainted by criticism that the tests did not include the possibility of a sovereign debt default, a prospect many believe is likely for bailed-out Greece, and a possibility for Spain and Italy.
"The stress tests came out and to all intents and purposes on the surface didn't look too bad, but the market is fairly and squarely focused on the risk of sovereign default and the risk of contagion in Europe," said HiFX Trading Director Mike Hollows in New Zealand.
Traders also have their eyes on the United States, where President Barack Obama and the Republican party struggled to make progress at the weekend in hammering out a deal to raise the debt ceiling.
If the two sides are unable to reach an agreement by the August 2 deadline the world's biggest economy will likely default on its debt obligations, a scenario Obama described as economic "Armageddon" that would have a devastating global effect.