Stock markets rebounded on Monday but investor optimism over the global recovery was kept in check by worries over the spread of coronavirus variants and China's regulatory crackdown.

Oil prices fell meanwhile on weak manufacturing growth from China, the world's biggest importer of crude.

Signs that US lawmakers were edging towards agreement on President Joe Biden's $1 trillion infrastructure bill have not provided much of a boost, while eyes were on the release of US jobs data at the end of the week as firms struggle to fill positions.

The Dow Jones index was essentially flat in midday trading in New York.

On the corporate front, shares in Sydney-listed Afterpay surged by nearly 19 percent after US digital payments platform Square, led by Twitter founder Jack Dorsey, said it would purchase the buy-now, pay-later company for $29 billion (24 billion euros).

In the latest sign of an upbeat global outlook, figures last week showed the US economy had returned to its pre-pandemic level while the eurozone expanded at a much better rate than forecast.

However, observers said the rally that world markets have enjoyed for much of the past year was sputtering as investors grow increasingly concerned about spiking inflation that many feel could force central banks to taper their monetary policies.

"With the reporting season in the US out of the way and valuations at sky-high, the only thing holding the markets up is the Fed's continued support in the form of ultra-easy monetary policy," said Fawad Razaqzada, an analyst at ThinkMarkets.

He added that the Fed sees the US labour market as an important indicator of economic progress, "which makes Friday's non-farm jobs report very important."

Oil prices fell sharply after a survey of Chinese purchasing managers came in on the weak side.

"A slowdown in the world's second-largest economy would be a big blow for the region at a time when numerous countries are struggling to get to grips with the latest Covid wave," said Craig Erlam, an analyst at Oanda.

Slow Covid-19 vaccination programmes in some countries and the rapid spread of the Delta variant has led to the reimposition of lockdowns and other containment measures.

Among those suffering a spike in cases is China, some cities are being forced to introduce new control measures after having successfully contained the virus for months.

"Shares remain at risk of a short-term correction or volatility as coronavirus cases rise globally, the inflation scare continues and as we come into seasonally weaker months," said Shane Oliver at AMP Capital.

Nervous traders are also keeping tabs on China after authorities there last week embarked on a crackdown on the country's private education sector as well as the tech and property sectors.

The moves raised concern that other industries could be next, despite officials and state media trying to calm the fuss.

- Key figures around 1600 GMT -

New York - Dow: FLAT at 34,942.59 points

EURO STOXX 50: UP 0.7 percent at 4,116.62

London - FTSE 100: UP 0.7 percent at 7,081.72 (close)

Frankfurt - DAX 30: UP 0.2 percent at 15,568.73 (close)

Paris - CAC 40: UP 1.0 percent at 6,675.90 (close)

Tokyo - Nikkei 225: UP 1.8 percent at 27,781.02 (close)

Hong Kong - Hang Seng Index: UP 1.1 percent at 26,235.80 (close)

Shanghai - Composite: UP 2.0 percent at 3,464.29 (close)

Euro/dollar: DOWN at $1.1870 from $1.1876 Friday

Euro/pound: UP at 85.53 pence from 85.34 pence

Pound/dollar: DOWN at 1.3878 from $1.3908

Dollar/yen: DOWN at 109.21 yen from 109.66 yen

Brent North Sea crude: DOWN 3.7 percent at $72.59 per barrel

West Texas Intermediate: DOWN 4.2 percent at $70.82 per barrel

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