The yen tumbled on Tuesday after the Bank of Japan called an emergency policy review to discuss ways to boost the ailing economy, but it regained some ground after the meeting when the central bank did not go as far as some investors had expected.

Shares in Asia firmed as fears about a global contagion from Dubai's debt problems faded, while European stocks were expected to open slightly higher.

Dubai's main share index <.DFMGI>, however, slumped 6.3 percent in early trade, skidding for a second day despite efforts by Dubai World, the company at the heart of the debt crisis, to restructure about $26 billion in debt.

The yen drew early selling as the Bank of Japan announced a special policy meeting, fueling expectations it would return to quantitative easing -- effectively flooding the system with cash -- to spur growth and help tackle deflation.

The Nikkei <.N225> rallied 2.4 percent on hopes for more growth boosting measures, while Japanese government bonds soared on expectations that the BOJ may buy more of the debt as part of further monetary easing steps.

Moves announced by the central bank after the meeting, however, appeared far more modest. The BOJ said it would introduce a new operation to provide funds for three months at a fixed interest rate of 0.1 percent, in a bid to enhance monetary easing by trying to bring down longer-term rates.

The dollar rose more than 1 percent against the yen to 87.49 yen after the announcement of the emergency meeting, but pared gains to 86.80 yen after the BOJ announcement, still up about 0.4 percent on the day. JGB futures also trimmed early gains.

It is a bit disappointing for the markets especially when they could have done much more ... such as increasing quantitative easing or raising JGB buybacks. The market was looking for more, and that is one reason why dollar/yen has dropped so sharply after the move, said Mitul Kotecha, global head of foreign exchange strategy at Calyon in Hong Kong.

In the short term it doesn't do anything for the markets and we have to wait to see the concrete outline of the government's stimulus packages. They have a problem of deflation and a rising exchange rate, and this is not going to solve either of them.

Japanese officials have sounded increasingly worried about the yen's strength, which will hurt exporters and potentially derail the country's economic recovery.

In contrast, the Aussie dollar quickly gave up gains in reaction to the Reserve Bank of Australia's decision to raise interest rates by 25 basis points to 3.75 percent and fell back amid uncertainty about the timing of the next rate rise.

The (central bank) statement didn't suggest any urgency, said Robert Rennie, a currency strategist at Westpac in Australia.

Shares in Australia <.AXJO> rose 0.4 percent after the rate increase, the third in as many months. The central bank said adjustments in monetary policy would help sustain economic growth.


Most Asian stock markets saw modest gains as fears about global fallout from Dubai's debt woes continued to ease, and as tech stocks were boosted by analysts' forecasts for rising demand for PCs and flat-screen TVs next year.

The MSCI index of Asia Pacific stocks traded outside Japan <.MIAPJ0000PUS> rose 0.9 percent, while the Thomson Reuters index of regional shares <.TRXFLDAXPU> was flat.

Dubai is still a risk but most of Asia has very limited exposure to Dubai other than isolated banks. So people may want to avoid the banks but most other companies are okay, said Francis Cheung, an equities strategist at CLSA in Hong Kong.

Singapore's DBS Group , Southeast Asia's top lender, said it had $1.28 billion exposure to Dubai but its shares were flat by early afternoon.

U.S. Treasuries were steady in Asia ahead of the Institute of Supply Management index for November and pending home sales, both due out of the United States at 1500 GMT.

Economic data out of Asia, including China purchasing managers' indexes [ID:nPEK127087][ID:nBJB003590] and a near 20 percent rebound in South Korean exports last month [ID:nSEO125047] indicated a regional recovery continued to gain momentum, but the optimistic news has already been largely factored into share prices.

Shares in Australian carrier Qantas , however, jumped 3.9 percent after the airline announced a 7 percent rise in October passenger numbers.

Oil prices were flat at around $77.20 a barrel after climbing 1.6 percent on Monday on news that Iran had restructured its naval forces for operations in the event of a conflict and had detained five Britons after their yacht strayed into Iranian waters.

Gold dipped to $1,178.20 an ounce, from a New York close of $1,179.10, but analysts said its uptrend was intact as its appeal as a safe haven was likely to persist and as central banks continued to show interest in increasing their holdings.

(Additional reporting by Koh Gui Qing in SYDNEY and Satomi Noguchi in TOKYO; Editing by Kim Coghill)