Friday's report that Germany's right-left coalition government would be prepared to ditch its balanced budget rule and take on new debt to counter a possible recession, continued to help the DAX index, which climbed 1.1%.

That came as oil stocks benefited from a rise in crude prices due to an attack on Saudi oil installations in Yemen and as China took steps to guide interest rates for companies lower, aiming to prop up a flagging economy.

The pan-European STOXX 600 index, hammered since the start of August by worries about a possible slide back into recession, was 0.9% higher by 0818 GMT.

"It's a continuation of the feel good factor that we saw on Friday ... but the wider fear factor is still very much alive and well," CMC Markets analyst David Madden said.

"Germany is normally very prudent and wouldn't be the kind of country to rely on a stimulus package to get their economy going again, but the fact that they are considering it tells us that they are actually a bit worried."

Longer-term bond yields in the euro zone as well as the United States, whose slide below short-term rates last week set off alarm bells, were off record low levels on Monday.

All eyes this week will move to the U.S. Federal Reserve's annual meetings in Jackson Hole, Wyoming, with the U.S. central bank widely expected to cut interest rates again next month.

Investors are counting on central banks to head off any slide in the global economy, and as a result equity markets, after a rocky few months.

Among major gainers were European banks, which rose 1.2%, led by a 3% rise for Deutsche Bank, and more than 1% rise for China-focused HSBC.

A Spiegel report said that major investors in the German lender wanted supervisory board chairman Paul Achleitner to step down before his term ends in 2022.