FOREX-U.S. dollar rises against yen as markets look to G7

* USD reverses losses versus yen amid hopes for G7 action

* G7 in focus as mkts clamor for crisis solution

* Financial markets remain extremely volatile (Adds quotes, updates prices, adds byline)

By Wanfeng Zhou

NEW YORK, Oct 10 (Reuters) - The U.S. dollar rallied from 6-1/2 month lows against the yen on Friday amid hopes for a another coordinated response to tackle the global credit crisis from G7 monetary leaders currently in Washington for a meeting.

Persistently tight credit conditions despite a raft of measures by policy-makers worldwide to unlock lending have stoked investor fears and led to extremely volatile trading across financial markets.

That fueled gains earlier in the yen across the board, hitting its highest in more than six months against the dollar and a three-year peak versus the euro. The dollar and euro have since recovered, but the market's bias was still to buy the Japanese currency.

Investors are looking to the Group of Seven meeting of finance ministers and central bankers in Washington for remedies to revive the global banking system after recent bank bailouts, liquidity injections and coordinated interest rate cuts failed to get bank funds flowing again. For more see [ID:nSP146183].

"There are hopes out there that the G7 meeting will end with some coordinated action from policymakers. It is still an extremely volatile, extremely nervous market," said Vassili Serebriakov, senior currency strategist at Wells Fargo in New York.

"But in our view, the events of the last week have shown policymakers are prepared to do whatever it takes to stabilize markets. There is a global understanding of the severity of the problem," he added.

In late morning trade in New York, the dollar last traded up 0.4 percent at 99.80 yen JPY=, after falling as low as 97.92 yen, the lowest since March, according to Reuters data.

The euro was down 0.2 percent at 134.96 yen EURJPY=, after hitting a three-year trough of 132.80 yen.

"Essentially we're flying blind. No-one has a clue what's going on," DZ Bank currency strategist Sonja Marten said. "The uncertainty is too great and volatility is incredible. It's a question of market confidence and somehow we're going to have to get it back."

The ICE Futures U.S. dollar index, which tracks the value of the greenback against a basket of six currencies, last traded up 0.5 percent at 81.808 .DXY, after rising as high as 81.959, a fresh 14-month high.

The euro was down 0.7 percent against the dollar at $1.3510 EUR=.

(Additional reporting by Steven C Johnson and Jessica Mortimer in London) (Editing by Theodore d'Afflisio)