By MICHELE MAATOUK European stocks were dragged down on Tuesday by weakness in German financial shares, while the yen gained ground against the dollar as investors took in the Bank of Japan's latest policy move. The region's equity markets were in the red across the board, with Germany's DAX lower than its peers, trading down 1.4%. Financial stocks were the biggest drag, weighed by Deutsche Bank AG, DBK.XE -1.84% which slumped 3.3% in a sudden move on reports that German financial regulator BaFin has asked two banks to separate their retail and investment banking operations. The euro dropped in tandem with the DAX, falling to the day's low against all its major rivals. BaFin's head spokeswoman declined to comment on individual banks. At the same time, the Bundesbank dismissed market rumors that Jens Weidmann was resigning as president as "utter garbage." The yen continued to gain against the dollar. The greenback initially jumped, spiking to ¥90.25 after the Bank of Japan committed to a 2% inflation target and pledged to continue buying financial assets for as long as necessary. But the yen soon rallied, with investors disappointed that open-ended asset purchases won't start until 2014. Since news of a general election in November, which Prime Minister Shinzo Abe went on to win, the yen has weakened significantly. "The move toward a 2% inflation target was fully in line with market expectations, whereas the open-ended asset purchases are a surprise move. It is a bolder move than most investors had been expecting," said Danske Bank DANSKE.KO -1.29% . "However, the BOJ did not expand its asset purchases for 2013 and its asset purchases planned for the open-ended easing in 2014 are in fact relatively modest." Danske added that a trend reversal after the latest BOJ announcement is unlikely. "If the yen starts to appreciate, we are certain that we will see new measures from the BOJ and the government. Hence, we still forecast that both EUR/JPY and USD/JPY will move higher in 2013 but the pace will most likely slow now." In bond markets, Spanish yields edged higher as investors awaited the sale of a new 10-year bond due to take place later in the day. Corporate news was thin on the ground on Tuesday. In London, shares in Ocado Group OCDO.LN +5.00% PLC surged after the online grocery retailer announced the appointment of former Marks & Spencer MKS.LN +0.54% PLC boss Stuart Rose as independent nonexecutive direction and chairman-designate. The ZEW survey, due at 0500 ET, is the first of Germany's key business surveys this week, with the Ifo scheduled for release on Friday. The data will be watched keenly, especially after the Bundesbank said on Monday that the prospects for the German economy have improved. Investors will also look out for U.S. existing home sales at 1000 ET, while Google Inc. GOOG -0.96% and International Business Machines Corp. IBM +0.42% are slated to report earnings.

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