The yen tumbled from near record highs on Monday after Japan intervened to curb the currency's export-damaging strength, while world stocks held above 2011 lows as expectations grew for more policy action in developed countries.

Japan spent an estimated 1 trillion yen ($13 billion) to sell the yen throughout Tokyo and London trading hours and is likely to leave extra liquidity from the intervention in the system. The Bank of Japan pledged to ease monetary policy further to bolster growth by buying assets such as stocks and bonds.

Japan's action follows an unexpected interest rate cut by Switzerland to weaken its currency on Wednesday.

There are expectations that may be the forerunner for fresh rounds of quantitative easing by the Federal Reserve and Bank of England, while the European Central Bank is under pressure to resume bond buying to ease the euro zone debt crisis.

This is going to be a long and drawn out campaign, since for Japan the Fed is more likely to cut than hike interest rates and thus the dollar remains pressured and for the Swiss there seems no resolution to the euro zone debt crisis, said Chris Turner, chief currency strategist at ING.

The dollar rose 3.7 percent to 79.90 yen, having fallen as low as 76.29 on Monday.

The MSCI world equity index <.MIWD00000PUS> fell 0.6 percent, although it stayed above the previous day's 2011 low. The index is on track for its biggest weekly gain in a year.

European stocks <.FTEU3> rose 0.2 percent while emerging stocks <.MSCIEF> fell 0.6 percent.

Last year's Japanese FX intervention and easing by the Federal Reserve led to Brazil's finance minister Guido Mantega to declare a currency war was erupting as developed economies sought to weaken their currencies to support export growth.

This in turn boosted hot money inflows to emerging countries, fanning inflation and helping trigger interest rate rises by some central banks.

It seems a fresh chapter is opening up in the currency wars, with both Japanese and Swiss officials trying to draw lines in the sand regarding the strength in their currencies they are prepared to tolerate, Turner said.

U.S. crude oil was steady at $91.92 a barrel.

The dollar <.DXY> rose 0.8 percent against a basket of major currencies.

The euro was down 0.6 percent at $1.4240.

EUROPE DEBT BOUNCE

There were some positive moves in Europe. Speculation that the European Central Bank may resume its bond buying helped Italy's 10-year government bond yield fall back below 6 percent. Bund futures were down 33 ticks.

Speculation the Federal Reserve may buy Treasuries again contributed to a turnaround on Wall Street <.SPX> on Wednesday as the previous round involving $600 billion bond buying which ended in June supported risky assets.

Two former top Fed officials conditionally endorsed a further round of bond buying, according to the Wall Street Journal.

Italy and Spain have been under increased pressure in recent weeks as markets feel the size of the euro zone's bailout fund is too small to protect larger fringe economies if contagion from the Greek crisis cannot be stopped.

On the back of government intervention (in currency markets) there's improved expectation that the ECB could do something today - maybe a longer term repo or something in the secondary markets, a bond trader said.

($1 = 76.890 Japanese Yen)

(Additional reporting by Anirban Nag)

Japan Bank of england Quantitative easing Currency war