European stocks were set to open slightly higher on Monday, adding to Friday's sharp rally sparked by dovish comments from European Central Bank President Mario Draghi and a surprise interest rate cut in China.

At 0725 GMT, futures for Euro STOXX 50, for Germany's DAX and for France's CAC were up 0.3-0.5 percent.

The FTSEurofirst 300 index of top European shares surged 2.1 percent on Friday, hitting a two-month high, with Italy's MIB index surging 3.9 percent in its biggest one-day rise since mid-2012, led by a sharp rebound in banking shares.

The prospect of further measures from the ECB to support the region's economy continued to weigh on the euro on Monday, falling to near 28-month lows below $1.24 against the dollar.

The single currency has fallen nearly 12 percent since early May, a slide seen as positive for European exporters' earnings.

On Friday, China cut interest rates, stepping up efforts to support the world's second-biggest economy as it heads towards its slowest expansion in nearly a quarter of a century, saddled under a mountain of debt.

Sources involved in policy-making told Reuters that China's leadership and central bank are ready to cut interest rates again and also loosen lending restrictions, concerned that falling prices could trigger a surge in debt defaults, business failures and job losses.

On the M&A front, British insurer Aviva said on Friday it had agreed terms on a possible deal to buy rival Friends Life for 5.6 billion pounds ($8.8 billion) as British pension reforms put pressure on insurance companies to find new business.

Canadian buyout firm Onex Corp said it would buy Swiss packaging group SIG Combibloc Group AG for up to 3.57 billion euros ($4.43 billion).

Global M&A activity in 2014 has hit a level not seen in seven years, according to Thomson Reuters data, with a flurry of deals in the struggling oil and gas sector as a plunge in crude oil prices below $80 has sparked the biggest consolidation wave in the sector since the 70's.