By Richard Hubbard
LONDON (Reuters) - The yen sank on Thursday after the Bank of Japan unveiled a bold plan to pump money into the economy, while Europe's main share indexes and the euro held steady after the European Central Bank left policy unchanged.
The BoJ surprised markets with a radical overhaul of its monetary policy framework, promising to inject about $1.4 trillion into the Japanese economy in less than two years as it seeks to end nearly two decades of stagnation.
"The market expected some of these initiatives but not the kind of scale they have delivered," said Daragh Maher, currency strategist at HSBC.
The yen sank by 2.6 percent to around 95.45 yen to the dollar - its biggest daily move since October 2011 - and by 2.3 percent to about 122.30 to a euro. The falls helped lift the dollar 0.8 percent against a basket of major currencies to an eight-month high of 83.39.
As the dollar strengthened, gold fell 3.2 percent to hit$1,546.35 an ounce and at one point touched $1,539.74 an ounce, its lowest level since May 30.
"Further easing from the BOJ should ultimately be positive for gold, but for now seems unable to match the combination of poor sentiment and a firmer dollar," UBS analyst Joni Teves said.
The BoJ's moves also sent Japan's Nikkei stock average <.n225> up 2.2 percent, while the 10-year Japanese government bond yield dropped to 0.425 percent, breaking its previous record low of 0.43 percent hit in June 2003.
MSCI's world equity index <.miwd00000pus> slipped 0.2 percent although U.S. stock futures point to a firmer Wall Street open, a day after the Standard & Poor's 500 Index <.spx> posted its biggest daily drop in over a month. <.n>
Markets showed little reaction to the widely expected decision by the European Central Bank to leave its key interest rates on hold.
The euro edged up marginally to around $1.2818 afterwards from $1.2810 before the decision, though it was still down 0.3 percent on the day.
The FTSEurofirst 300 index of top European shares <.fteu3> was also little changed after the decision while London's FTSE 100 <.ftse>, Frankfurt's DAX <.gdaxi> and Paris's CAC-40 <.fchi> were between 0.4 percent lower and 0.75 percent up. <.l><.eu>
Investors were waiting for the regular news conference by ECB President Mario Draghi to see if he will hint at any future policy change after a run of weak data has thrown a spotlight on the fragile state of the region's economy.
In initial comments, he said: "Weak economic activity has extended into the early part of the year and a gradual recovery is projected for the second half of this year, subject to downside risk.
A survey released earlier on Thursday, which covered thousands of companies, from banks to hotels and restaurants, showed order books had shrunk at their fastest pace in half a year last month.
"The recession is deepening once again as businesses report that they have become increasingly worried about the region's debt crisis and political instability," said Chris Williamson, chief economist for the survey's compiler Markit.
The Bank of England also chose to hold its key rate unchanged at 0.5 percent, where it has been for over four years, despite having a new remit to promote growth.
In the European debt market Spanish bond yields were falling after Madrid successfully sold 4.3 billion euros of new debt despite worries about the fallout from the bailout of Cyprus and Italy's political stalemate.
"It shows that despite all the uncertainty we have seen in Cyprus recently and ongoing political uncertainty in Italy, Spanish bonds are still seeing decent demand," said Nick Stamenkovic, strategist at RIA Capital Markets.
Spanish 10-year government bond yields dropped 3 basis points to around 4.9 percent, while equivalent safe-haven German bonds were down 1 basis point at 1.267 percent.
Elsewhere, oil was steadily recovering after its biggest fall in five months on Wednesday when weak private sector jobs data and swelling inventories in the United States had muddied the demand outlook.
"There is now no shortage of oil in the United States or anywhere else. This is very clear. And we can see that the economic recovery is also not as good as we thought it was," said Ken Hasegawa, a commodity sales manager at Newedge.
"We see more downside pressure on oil prices," he said.
Brent crude added 0.5 percent to $107.65, and U.S. crude was holding around $94.40 a barrel.
(Additional reporting by Christopher Johnson and Clara Denina; Editing by Will Waterman and Alastair Macdonald)