Japan's Nikkei average pared gains to close near its day's lows on Monday after rising more than 3 percent at one point, with investors disappointed by a Bank of Japan decision that contained no surprises and was seen as lackluster at best.

At an emergency meeting, the BOJ expanded its fund supply tool, saving more aggressive steps for when there is clearer evidence of a slowdown in a fragile economy hit by a strong yen.

But analysts questioned whether the central bank's action would do much to help to stem a rise in the Japanese currency that hurts exports and may delay Japan's exit from deflation, noting that most of the steps it took had already been widely expected.

This is better than nothing, but still disappointing. There's little content in this message, said Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Morgan Stanley Securities.

Certainly there's some thinking that the BOJ wants to save its stronger measures for later, but if you look at what the yen and stock market have been doing lately I wonder if this is really such a good decision. Things are already tough.

In thin trade, the Nikkei ended up 1.8 percent or 158.20 points to 9,149.26. It rose more than 3 percent or as far as 9,280.70, roughly 300 points, on short-covering before the results of the BOJ meeting came out during the midday recess.

The broader Topix rose 1.2 percent to 829.21, also off earlier highs.

Despite the Nikkei's rise over the past two trading days, which has taken it up 2.7 percent, market players said sentiment remained fragile in the absence of bolder BOJ moves and that levels around 8,800 could be tested soon.

There's a lot of economic data coming out this week and next, particularly the U.S. non-farm payrolls figures on Friday, and I think the Nikkei might test lows again late this week or early next week, Yamagishi added.

Below 8,800, the next target is 8,697, a 61.8 percent retracement of the rally between the Nikkei's March 2009 low and April 2010 high.

The dollar hit a 15-year low of 83.58 yen last week, when the Nikkei fell to a 16-month low of 8,807.41. The greenback was trading at 85.15 yen by the afternoon, down 0.1 percent.

Tokyo shares got their initial upward impetus from gains made by U.S. stocks on Friday on strong buying interest at a key technical level and short-covering.

Also helping was a less gloomy revision for U.S. GDP than expected. Second-quarter gross domestic product growth was revised down to 1.6 percent, from 2.4 percent. Many economists had forecast an even bigger downward revision to 1.4 percent growth.

EXPORTERS, TRADERS

Exporters held onto gains, although they were off earlier highs.

Canon Inc rose 2.4 percent to 3,585 yen and Kyocera Corp climbed 2.6 percent to 7,440 yen. Honda Motor Co advanced 1.6 percent to 2,855 yen.

Amid broad-based buying, trading houses rose, with one analyst saying foreign investors were buying commodities-related shares during the morning session.

Foreign investors seem to be buying commodity-related stocks such as trading houses because some have already started to expect to see more liquidity in markets due to speculation for monetary easing both in Japan and the United States, said Hiroaki Kuramochi, chief equity marketing officer at Tokai Tokyo Securities.

Mitsubishi Corp rose 1.6 percent to 1,859 yen and Mitsui Co added 1.1 percent to 1,139 yen.

Kyowa Hakko Kirin rose 2.6 percent to 878 yen, continuing to extend gains after Mizuho Securities lifted its rating on the stock to outperform from neutral on August 26, saying the stock had fallen excessively despite a solid earnings outlook.

Some 1.55 billion shares changed hands on the Tokyo exchange's first section. Advancing stocks outnumbered declining ones by more than 9 to 1.

(Reporting by Elaine Lies; Editing by Edwina Gibbs)

Japan Nikkei 225