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Japan's Nikkei share average rebounded sharply on Monday morning on the heels of a rally in European bank stocks and on Wall Street after the benchmark index posted the worst weekly drop since 2008 on Friday.

The Nikkei rose 7.16 percent to 16,022.58 after ending at the lowest closing level since October 2014. It dropped 11 percent last week.

The market's rebound offset dismal domestic data released in the morning. Japan's economy contracted an annualised 1.4 percent in the final quarter of last year as consumer spending slumped, adding to headaches for policymakers already wary of damage the financial market rout could inflict on a fragile recovery.

Bloomberg said, “The share market gains follow a jump in U.S. equities Friday, signs that shares have been oversold, and expectations that the poor GDP number increases pressure on the central bank to boost monetary stimulus.”

China’s stocks fell as trading resumed after a week-long holiday, while shares of the nation’s companies rallied in Hong Kong. The yuan surged the most since at least 2005.

Today, The Shanghai Composite Index dropped 0.63 percent to 2,746.20., as losses for financial and industrial companies overshadowed a rally for gold miners. The Hang Seng China Enterprises Index jumped fr om a six-year low close increased 4.78 percent to 7,863.84.

The Hang Seng China gauge traded at 5.8 times reported earnings last week, the cheapest since at least 2001, after the index tumbled 6.8 percent in two days.

European shares opened sharply higher on Monday on the back of gains in Asia wh ere the Nikkei surged more than 7 percent and a stronger fix of the yuan eased devaluation concerns.

By 0822 GMT, the pan-European FTSEurofirst 300 index rose 2.5 percent to 1,262.59 points, while the Euro Stoxx 600 index was also up 2.34 percent to 319.72

Bank sector stocks, up 3 percent, were among the top sectoral gainers, extending Friday's rebound, with sentiment helped by news that the European Central Bank (ECB) is in talks to buy bundles of Italian bad bank loans as part of its asset-purchase programme.

Reference: Reuters, Bloomberg