World stock markets rallied Monday, extending their recovery after recent turmoil, but analysts warned of further volatility ahead.

In Europe, the focus was firmly on Britain as the pound slumped following a political twist to the country's vote on EU membership.

And in a reminder that all was not well within the eurozone, data Monday revealed a sharp drop in private sector business activity across the single currency bloc.

"A rebound in oil prices and a rally in Asia... has seen European markets rise in early trade as investors attempt to capitalise on the continued positive momentum and move back towards risk that has seen markets rally strongly" in recent sessions, said Rebecca O'Keeffe, head of investment at stockbroker Interactive Investor.

"Although the general trend of markets is higher, the sharp moves in both directions seen last week do suggest continued uncertainty and volatility is likely to continue," she added.

In late morning deals, London's benchmark FTSE 100 index gained 1.1 percent, Frankfurt's DAX 30 jumped 1.7 percent and the Paris CAC 40 won 1.5 percent.

- "Brexit" fears -
In Britain, Prime Minister David Cameron will Monday present parliament with a deal on EU reforms, hoping to win support for his campaign to stay in the bloc after London Mayor Boris Johnson dealt a blow by backing a "Brexit".

The British prime minister's speech follows Johnson's dramatic announcement Sunday that he will back the Leave campaign, despite Cameron having appealed for his support.

"The Brexit discussion is one that will rumble on, but is not the only story in the markets today and certainly not a story that is moving markets outside of the UK," said James Hughes, chief market analyst at traders GKFX.

In foreign exchange, sterling fell heavily against both the dollar and euro compared with Friday.

"Certainly, today's move can be attributed to Brexit, and possibly Boris Johnson putting his weight behind that outcome," said Brenda Kelly, head analyst at London Capital Group.

She added that "overall weakness in sterling lately" is owing to signs that the Bank of England is in no rush to follow the Fed by raising interest rates, "as well as a fairly volatile backdrop in equity markets" that has seen a switch into haven investments such as German bonds.

But the eurozone economy remains hampered, with private sector business activity slowing sharply in February, a closely watched survey said on Monday, with a warning that the economic outlook could weaken even further.

Data monitoring company Markit said the downbeat data showed stagnation in France and slumping demand in powerhouse Germany were adding to already significant deflationary pressures, which can be very damaging to the economy.

Markit said its closely watched Composite Purchasing Managers Index (PMI) fell to 52.7 points in February from 53.6 in January, hitting a 13-month low.
The reading was still above the 50-point boom-or-bust line, showing the 19-nation eurozone economy continued to expand, albeit at a slower pace.

Elsewhere Monday, Asian stock markets swept higher, with Shanghai leading the charge after news China had replaced its securities regulator, while a rise in oil prices cheered investors across the region.

Chinese shares closed up more than two percent after the head of the securities regulatory body who was in place during last year's market rout was dismissed, while Japan's exporters gained on a weaker yen.

- Key figures around 1100 GMT -

London - FTSE 100: UP 1.1 percent at 6,017.7 points

Frankfurt - DAX 30: UP 1.7 percent at 9,548.3

Paris - CAC 40: UP 1.5 percent at 4,286.8

EURO STOXX 50: UP 1.9 percent at 2,925.1

Tokyo - Nikkei 225: UP 0.90 percent at 16,111.05 (close)

Shanghai - composite: UP 2.35 percent at 2,927.18 (close)

Hong Kong - Hang Seng: UP 0.93 percent at 19,464.09 (close)

New York - Dow: DOWN 0.1 percent at 16,391.99 (close)

Euro/dollar: DOWN at $1.1060 from $1.1131 on Friday

Euro/pound: UP at 78.03 pence from 77.35 pence

Pound/dollar: DOWN at $1.4173 from $1.4392

Dollar/yen: UP at 113.26 yen from 112.62 yen