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* IBEX rises after Spanish election result
* Brexit still weighs on broader European market
* Royal Bank of Scotland and Barclays fall sharply
* Spanish banks manage to rise
By Sudip Kar-Gupta
LONDON, June 27 (Reuters) - 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 percent. The euro zone's blue-chip Euro STOXX index was flat.
Britain's FTSE 100 fell 0.4 percent, after dropping 3.2 percent on Friday, the day following the referendum where Britain voted to quit the EU.
However, Spain's IBEX rose 2 percent. 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 percent and Caixabank gained 5.8 percent.
"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 percent and Barclays fell 7.7 percent.
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. (Editing by Larry King)