European stock markets rose Monday, with gains in London capped by a sharp drop in the share price of Unilever following the collapse of a proposed mega-merger.

Unilever shed 6.6 percent on London's benchmark FTSE 100 index to trade at £35.47 in morning deals.

Over the weekend, US food giant Kraft Heinz dropped a bid to buy Unilever just days after the Dutch-British consumer goods group rejected a $143-billion buyout offer.

"Although the Kraft Heinz deal for Unilever met a very quick end, the market has been quick to embrace the wider possibility of future potential mergers and acquisitions, which is giving equity markets a boost," said Rebecca O'Keeffe, head of investment at stockbroker Interactive Investor.

Unilever's share price had surged 14 percent on news of a possible deal, while Kraft closed Friday with a gain of nearly 11 percent.

Offsetting Monday's losses for Unilever was a jump of 5.7 percent to 256.20 pence for shares in Royal Bank of Scotland.

The British government late on Friday proposed plans for the bailed-out RBS to fund initiatives worth £750 million to improve competition in the sector, in order to meet its rescue conditions.

“RBS shares jumped... after it confirmed the EU is looking at alternatives to forcing the troubled lender to selling off around 300 Williams & Glyn brand branches," said Neil Wilson, senior market analyst at traders ETX Capital.

Rolls-Royce meanwhile won more than 4.0 percent after a broker upgrade from Goldman Sachs, traders said.

In Asia on Monday, Shanghai's main stocks index won more than one percent by the close, with traders buoyed by reports that China's official pension funds may start investing.

Wall Street's strong performance last week continued to reverberate after US stocks hit new highs Friday for the sixth time in seven sessions.

US markets were closed Monday for the Presidents' Day holiday.

In Tokyo, stocks overcame early losses to end modestly higher as yen weakness prompted late bargain-hunting.

Shanghai gained 1.18 percent after a Chinese media report that a first tranche of investment into China's stocks by official pension funds was expected as early as this week.

"This is great news for the mainland Chinese market. Investor confidence and trading enthusiasm was fired by this," Yingda Securities' chief economist Li Daxiao told AFP.

Retail conglomerate Shanghai Bailian Group surged by its 10 percent daily limit to 17.82 yuan on Monday after the announcement of a tie-up with e-commerce giant Alibaba.

Key figures around 1030 GMT

London - FTSE 100: UP 0.1 percent at 7,303.72 points

Frankfurt - DAX 30: UP 0.6 percent at 11,824.97

Paris - CAC 40: UP 0.2 percent at 4,874.64

EURO STOXX 50: UP 0.2 percent at 3,314.84

Tokyo - Nikkei 225: UP 0.1 percent at 19,251.08 (close)

Hong Kong - Hang Seng: UP 0.5 percent at 24,146.08 (close)

Shanghai - Composite: UP 1.2 per cent at 3,239.96 (close)

New York - Dow: UP less than 0.1 percent at 20,624.05 (close)

Euro/dollar: DOWN at $1.0617 from $1.0612

Pound/dollar: UP at $1.2461 from $1.2416

Dollar/yen: UP at 113.14 yen from 112.89 yen

Oil - Brent North Sea: UP 44 cents at $56.25 per barrel

Oil - West Texas Intermediate: UP 37 cents at $53.77