European shares fell sharply on Monday, the first day of trading for 2016, as weak Chinese economic data weighed on world stock markets.

The pan-European FTSEurofirst 300 index fell 2.3 percent, while the euro zone's blue-chip Euro STOXX 50 index declined by 2.6 percent.

China's factory activity contracted for the 10th straight month in December and at a sharper pace than in November, a private survey showed, dampening hopes that the world's second-largest economy will enter 2016 on a more stable footing.

Shares in carmaker Fiat Chrysler fell after the spin-off of its Ferrari division, but French conglomerate Bouygues outperformed to rise 1.3 percent after a media report that Orange was moving closer to buying Bouygues' telecoms arm for 10 billion euros ($10.86 billion).