However, with U.S. investors out for the Labor Day holiday, markets were likely to trade in a limited range.

Expectations that central banks would take steps to boost growth increased after two Chinese surveys showed factory activity in world's second largest economy slowing more than expected in August.

"I think we're going to see more stimulus from pretty much every central bank on the face of the planet," said Michael Ingram, market analyst at BGC Partners.

"You know we're living in a globalised economy. It's a globalised slowdown so policy makers have to step up to the plate."

The FTSEurofirst 300 index .FTEU3 of top European shares was up 0.5 percent in early trade on Monday to 1,088.42 points, adding to gains of 0.5 percent on Friday.

The euro stood at $1.2575, just below an eight-week peak of $1.2638 set on Friday when U.S. Federal Reserve Chairman Ben Bernanke left the door open for further stimulus.

But any move from the Fed is not expected until its next meeting in mid-September at the earliest and will be heavily influenced by the August payrolls report due out this Friday.

The European Central Bank meeting on Thursday is the market's main focus. The ECB could cut rates after new data showed the euro zone's manufacturing sector contracted faster than previously thought in August.

Markets are also expecting the ECB to release details of its new bond-buying plan to ease the region's debt crisis, which many central banks say is the prime cause of the global slowdown in economic activity.

EURO ZONE RECESSION

The final reading of August's Manufacturing Purchasing Managers' Index (PMI) for the euro area showed it had fallen from an initial estimate of 45.3 to 45.1, notching its 13th month below the 50 mark separating growth from contraction.

The data showed that a downturn which began in the smaller peripheral members of the 17-nation bloc is now sweeping through Germany and France and the situation remained dire in the region's third and fourth biggest economies of Italy and Spain.

"Larger nations like France and Germany remain in reverse gear... the (manufacturing) sector is on course to act as a drag on gross domestic product in the third quarter," said Rob Dobson, senior economist at data collator Markit.

Other central bank policy meetings this week include the Reserve Bank of Australia on Tuesday, the Bank of Canada and Bank of Thailand on Wednesday, and the Bank of England and Bank Negara Malaysia on Thursday.

The MSCI world equity index .MIWD00000PUS was barely changed at 322.40 points but it ended seven straight down days on Friday when investors interpreted the Fed chief's latest comments as a sign further stimulus measures were likely.

In oil markets Brent crude edged lower after the latest surveys on Chinese factory activity pointed to a further slowdown in the world's No.2 oil consumer although hopes of central bank action limited the losses.

Brent October futures were down 7 cents at $114.50 per barrel, steadying after jumping nearly $2 on Friday. U.S. crude futures eased 15 cents to $96.32.

"The Chinese data is very gloomy and suggests that the world economy is slowing," said Carsten Fritsch, oil analyst at Commerzbank in Frankfurt. "But the market impact is rather limited as it raises hopes of more economic stimulus measures."

(Additional reporting by Jonathan Cable and Christopher Johnson; Editing by Anna Willard)

• A Permanent Economic Emergency