TOKYO, July 29 (Reuters) - Japan's Nikkei share average tumbled and stayed volatile on Friday after the Bank of Japan's policy easing fell short of investors' high expectations, but financial stocks outperformed as the central bank kept the negative interest rate unchanged.
The Nikkei fell as much as 1.8 percent to 16,174.35 points in early afternoon trade before trading nearly flat at 0406 GMT. The benchmark index had closed the morning session at 16,411.39.
The BOJ expanded monetary stimulus on Friday through a modest increase in purchases of exchange-rated funds, but maintained its base money target at 80 trillion yen ($775 billion) as well as the pace of purchases for other assets including Japanese government bonds.
"It's just ETF-buying. The market is disappointed, thinking this is far from enough to pull the country out of deflation," said Norihiro Fujito, a senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.
Traders widely had expected the BOJ to increase its already massive purchases of government bonds and some riskier assets such as ETFs and possibly real-estate investment trusts (REITs).
Financial stocks such as banks and insurers surged as investors took heart from the central bank's decision to hold off from cutting interest rates on some deposits at the BOJ deeper into negative territory.
Mitsubishi UFJ Financial Group jumped 4.6 percent, Mizuho Financial Group soared 3.0 percent. Dai-ichi Life Insurance Co surged 3.9 percent and Sompo Japan Nipponkoa Holdings rose 2.1 percent.
The broader Topix rose 0.1 percent to 1,308.50 and the JPX-Nikkei Index 400 was flat at 11,755.19. (Reporting by Ayai Tomisawa; Editing by Eric Meijer)