Global stock markets and the euro fell on Monday, rocked by debt in the eurozone and the United States, and gold soared above $1,600 for the first time in history as investors sought safety.

Europe's banking sector slid as traders expressed doubts over Friday's EU stress tests which gave a clean bill of health to most banks but did not examine the possible impact of a eurozone sovereign default, dealers said.

Investor focus is moving towards Thursday's Brussels summit of eurozone leaders who will seek to settle their debt crisis and stop Greece toppling into a possible default and dragging bigger euro economies into deeper trouble.

In late morning deals, London's FTSE 100 index of leading companies sank 0.94 percent to 5,788.99 points, Frankfurt's DAX 30 plunged 1.06 percent to 7,143.26 points and in Paris the CAC 40 dived 1.23 percent to 3,680.71.

Madrid's stock market slipped 0.28 percent and Milan lost a hefty 1.61 percent in value.

The euro retreated to $1.4046 in morning London trade, compared with $1.4156 late in New York on Friday.

Gold surged to a record high at $1,600.80 on the London Bullion Market, as the precious metal extended its recent record-breaking surge.

"Money continues to move out of equities and into gold as ongoing eurozone debt concerns continue to gather momentum," said ETX Capital trader Manoj Ladwa.

"While the precious metal trades up at all-time highs, European stocks are trading sharply lower as borrowing costs for sovereign debt soars."

The Swiss franc climbed to fresh record high levels against the single currency, hitting a 1.1404 francs versus the euro.

Gold and the franc are regarded by most investors as safe havens in times of global economic turmoil.

Meanwhile, Asian stocks edged down Monday on fears US lawmakers will not agree a budget to avoid a potentially catastrophic default in the world's biggest economy.

Politicians are wrangling over a $1.5-trillion deficit reduction plan that would allow a crucial increase in the US debt ceiling.

If the $14.3-trillion debt ceiling is not increased by August 2, Washington has warned, it faces the choice of defaulting on its existing debt or huge cuts in spending that could contract the economy -- or a combination of both.

"Investors are now adding real fears of a US default to go along with their European sovereign worries," said Spread Co analyst Ian O'Sullivan.

Markets had slid last week as the eurozone debt crisis, which has already sunk Greece, Ireland and Portugal, showed signs of spreading to Italy and Spain.

The EU's European Banking Authority announced late on Friday that only eight of 91 European banks had failed so-called "stress tests" which were designed to assess their capital levels.

Five Spanish banks, two Greek and one Austrian bank failed to meet the regulator's new capital requirements, while another 16 financial institutions only just scraped through with a pass.

A ninth bank, Germany's Helaba, said it had failed according to the EBA's standards but passed on its own calculation.

However, economists have cast doubt on the credibility of the tests because they failed to examine the impact of a potential eurozone nation default.

"It is impossible to gauge any sort of worst case scenario, because the worst case scenario was not included," said VTB Capital's Neil ManKinnon.

"Even though only eight banks did not pass their exams when almost double that were expected to, investors are all too quick to remember that last year's tests saw all the Irish banks pass only for them to be bailed out shortly after swiftly followed by the whole country."

The EBA had set out certain capital requirements it deems essential to act as a buffer against 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.