By Leika Kihara and Rie Ishiguro
TOKYO (Reuters) - The Bank of Japan on Tuesday continued its huge fund injections into the banking system, while top economic officials highlighted the economy's resilience in a desperate attempt to limit a sharp selloff on the Tokyo stock market.
Japanese shares plunged at one point more than 14 percent to two-year lows as more explosions rocked a quake-stricken nuclear plant, triggering a rise in radiation and prompting investors to dump riskier assets across Asia.
The yen surged on Tuesday, though a sudden spike in the dollar triggered market talk of intervention. Finance Minister Yoshihiko Noda declined to comment on whether Tokyo stepped into the market to weaken the yen and traders later played down the sudden rise in the dollar as a result of a one-off trade
A senior government official also told Reuters speculation was behind sharp movements in the currency and stock markets.
"We will continue to monitor the market," Noda told reporters.
The Bank of Japan on Tuesday offered to pump 8 trillion yen ($98 billion) into the banking system, continuing its huge fund injection aimed at easing market jitters in the face escalating nuclear crisis and fears of unprecedented damage from the earthquake.
It follows a record 15 trillion yen the BOJ offered in same-day market operations on Monday.
"Japan's production and the economic power have not fallen. I think the market confusion will calm down in a short time," Economics Minister Kaoru Yosano told a news conference after a cabinet meeting.
Still, he suggested that the government could downgrade its assessment on the economy in the coming month by saying that its next monthly report will focus on analyzing impacts of the quake and nuclear accidents.
Noda said the stock market was falling in response to "temporary factors" and though he was watching market moves closely he expressed optimism that the Japanese economy would continue to improve.
However, markets gripped by fear that the nuclear emergency could escalate, paid little heed to such assurances and Nikkei futures traded in Osaka tumbled more than 16 percent at one point after Japanese Prime Minister Naoto Kan said radiation levels had become high around the damaged nuclear power plant.
"Our basic view is that the Japanese economy was in doldrums late last year but it has been gradually improving... The Bank of Japan and the government are doing utmost to forestall damage to the economy," Noda said.
The government on Monday tapped 30 billion yen from the 200 billion yen in reserves set aside for disaster relief in the budget for the current fiscal year ending in March.
Noda said the government has ample funds to meet near-term costs of quake relief. But he stopped short of saying whether an emergency budget will be compiled and if so, when, stressing that the government first needed to estimate how much spending would be needed to cope with the devastation caused by the triple blow of a massive earthquake, a tsunami and a deepening nuclear crisis.
(Additional reporting by Kaori Kaneko and Tetsushi Kajimoto; Editing by Edmund Klamann and Tomasz Janowski)