Italian shares rose as investors bet against an immediate snap election in Italy following Prime Minister Matteo Renzi's resignation after defeat in a constitutional reform referendum.
Markets had been jolted by the scale of Renzi's defeat which pointed to further turbulence and political crisis in the euro zone's heavily indebted third-largest economy and particular uncertainty was focused on the country's fragile banks.
The euro fell as low as $US1.0508 and the Milan bourse shed as much as 2 per cent at the opening, while Italian bond yields spiked sharply higher.
But most of these moves quickly reversed. The euro roared back above $1.06, still down on the day, Italian stocks moved higher, and Germany's DAX and Europe's FTSEuroFirst index of leading 300 shares both rose 1.5 per cent.
US futures pointed to a rise of about 0.5 per cent at the open on Wall Street.
Italian financials rose 0.5 per cent having fallen more than 4 per cent, and shares in the world's oldest bank, Monte dei Paschi, were flat on the day after being suspended at the opening.
Bonds remained under pressure though. Italy's benchmark 10-year bond yield jumped 11 basis points (bps) to 2.01 per cent, widening the premium investors demand for holding Italian bonds over safer German bonds to 175 bps, before easing slightly.
Markets had earlier taken some encouragement when Austria's far-right presidential candidate was soundly defeated by a pro-European contender, confounding forecasts of a tight election.
The European Central Bank meets on Thursday amid much speculation it will announce a six-month extension of its asset buying programme and widen the type of bonds it can purchase.
Earlier in Asia, MSCI's broadest index of Asia-Pacific shares outside Japan eased 0.4 per cent and Japan's Nikkei closed down 0.8 per cent.
China's blue-chip index fell the most in six months on Monday the top securities regulator warned against "barbaric" share acquisitions, though small-caps outperformed as a Shenzhen-Hong Kong investment link went live.
The blue-chip CSI300 index fell 1.7 per cent to 3,469.41 points, registering the biggest loss since mid-June. The Shanghai Composite Index lost 1.2 per cent to 3,204.71.
Hong Kong's Hang Seng index retreated 0.7 per cent.
Wall Street ended Friday on a cautious note, with the Dow off 0.11 per cent, while the S&P 500 rose 0.04 per cent and the Nasdaq gained 0.09 per cent.
While the US November payroll report on Friday was firm enough to cement expectations of a US interest rate hike by the Federal Reserve this month, a surprise pullback in wages helped bonds pare a little of their recent losses.
In currencies, the US dollar was supported by expectations of a U.S. rate increase this month and more to come next year.
The US dollar index,, which tracks the greenback against a basket of six global peers, was up 0.2 per cent at 100.95.
Against the yen, the US dollar rose 0.4 per cent to 114 yen.
