NEW YORK ( TheStreet) -- U.S. Money Market Funds are continuing to decrease their exposure to European banks, according to the latest report from Fitch.

At the end of June - prior to the release of the results of stress tests on 91 European banks - the ten largest U.S. prime money market funds (MMFs) had reduced their total exposure to European banks by 8.7% compared with a month earlier.

"European bank exposure now represents 49.6% of total holdings of $698 billion within Fitch Ratings'sample. The share is down from 50.2% as of month-end May, which was based on total MMF holdings of $755 billion," the report reads.

Fitch analyst Viktoria Baklanova told TheStreet that further declines in European exposures are likely. "Confidence is one of the main factors for the U.S. money market funds. Therefore, we expect the funds to remain cautious and focused on liquidity in face of continuing volatility in credit spreads," she said earlier today.

According to the Fitch analysis, German bank exposure fell back from 6.3% to 5.5% of assets (or, a 19% decline on a dollar basis), while French bank exposure decreased from 14.8% to 14.7% of assets (or, an 8.2% decline on a dollar basis) over the same period.

Although the most widely-held European banks have little exposure to Greek sovereign debt, there is significant exposure to the sovereign debt of other peripheral nations, which contains significant headline risk as the European sovereign debt crisis lingers.

The trend of declining exposure to French bank debt in particular may be more pronounced at the end of July after all four French banks examined as part of the European stress tests - BNP, Société Générale, Crédit Agricole and BPCE - revealed high levels of sovereign debt exposure.

Between them they held a total of ¿48.2bn of gross exposure to Italian sovereign debt, of which almost half was held by BNP Paribas. BNP owns BNL, the Italian bank. Crédit Agricole, which also has stakes in Italian banks, had ¿12.3bn of gross exposure to Italian sovereign debt.

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