Heading towards the halfway stage, London's FTSE 100 index of top shares was 1.77-percent higher at 6,145.00 points.

In Frankfurt the DAX 30 gained 0.86 percent to 7,402.76 points and the Paris CAC 40 climbed 1.10 percent to 5,508.60.

Sentiment was clearly more comfortable Monday following the recent rout -- which saw London's FTSE 100 shed 2.99 percent last week, including a massive 3.71-percent loss on Friday.

But dealers said the mood remained cautious as the market waited anxiously to see whether Wall Street could maintain Friday's late recovery when it reopens at 1330 GMT.

Some economists said stocks could fall further before the market sees a true recovery, while others said last week's plunge had been exaggerated.

"Talk of a market meltdown is wildly overdone," said Julian Jessop, chief international economist at Capital Economics in London.

"This is the third sell-off since the start of 2006: markets recovered from the last two without any significant fall-out on the wider economy," he noted Monday.

"Admittedly, the latest sell-off is relatively severe. But for all the talk of a crisis on Wall Street, the S and P actually rose by 1.4 percent over last week as a whole," Jessop added.

The European Central Bank on Monday injected 47.66 billion euros (65.06 billion dollars) into the money market to address liquidity shortages amid growing fears about the US home loan sector.

The bank said earlier that the eurozone banking market was returning to normal after it injected a record 155.85 billion euros into the market over two days last week.

Markets have been badly hit by worries over the US subprime mortgage sector, which provides home loans to people with poor credit histories. Some investors fear the US housing woes may weaken global economic growth.

"It would be naive to think the worst is behind us," said David Jones, chief analyst at CMC Markets. "It wouldn't be surprising to see the (London) market test the 6,000 barrier this week."

Also Monday, Japan's central bank said it would put 600 billion yen (5.0 billion dollars) into the money market, on top of a one-trillion-yen injection on Friday.

The Tokyo Stock Exchange's benchmark Nikkei-225 index closed up 0.21 percent at 16,800.05 points on Monday, after plunging 2.37 percent Friday to a near five-month low.

"Fund injections by central banks here and in the US, as well as Europe and elsewhere, helped diminish the downside prospects for the world's stock markets, although investors are still cautious," said Hiroichi Nishi, an equities information manager at Nikko Cordial Securities.

Hong Kong share prices closed 0.45 percent higher as index heavyweight China Mobile gained on expectations that it will report strong first-half results this week. But trade was volatile and volume relatively light because of the subprime crisis.