European stocks extended their rally on Monday morning after Italy's borrowing costs fell at an auction, helped by hopes of fresh measures from the European Central Bank to fight the euro zone debt crisis.

At 0949 GMT, the FTSEurofirst 300 index of top European shares was up 1.1 per cent at 1,068.01 points, a level not seen since early April, while the euro zone's blue chip Euro STOXX 50 index was up 1.4 per cent, at a three-month high of 2.332.93 points.

Italy sold 5.48 billion euros of government bonds in an auction at which yields fell compared with the previous comparable sale.

Spain's IBEX index was up 2.1 per cent and Italy's FTSE MIB was up 2.7 per cent.