WRAPUP 2-G7 warns on yen, markets shrug off intervention risk

(updates with Tokyo market, more comment)

* G7 says prepared to act on excessive yen swings, if needed

* Intervention talk gathers steam, yen holds gains

* Australia intervenes in currency market for 2nd day

By Hideyuki Sano and Tetsushi Kajimoto

TOKYO, Oct 27 (Reuters) - The Group of Seven rich nations tried to rein in the surging yen, saying its wild swings threatened stability, but failed to convince investors they were ready to jump into currency markets in the midst of a financial storm.

G7 finance ministers and central bank governors said they were prepared to act, if necessary, as the yen rocketed toward a 13-year high against the dollar, driven by an exodus of Japanese cash from emerging markets and other high-yielding investments.

"We are concerned about the recent excessive volatility in the exchange rate of the yen and its possible adverse implications for economic and financial stability," the G7 said in a brief statement.

"We continue to monitor markets closely, and cooperate as appropriate," the group, comprising the United States, Japan, Germany, Britain, France, Italy and Canada, said.

The yen barely paused for breath after the statement as investors bet Japan's G7 partners had little appetite for a fight with markets as they grappled with worst financial turmoil in 80 years.

Some analysts did take the statement as hint at possible currency intervention by the Bank of Japan, especially after the Australian central bank stepped into the market for a second day to support its dollar near record lows against the yen.

"Given the panicky and irrational movements of the yen of late, the Japanese authorities may conduct intervention independently," said Kazuyuki Kato, foreign exchange trader at Mizuho Trust & Banking in Tokyo.

"Such action may be taken if the dollar falls below the 90 yen level. But given the fact that the dollar is rising against major currencies, except for the yen, Japan is not likely to be able to win support for coordinated action."

But a former Bank of Japan official had a word of caution.

"The G7 statement showed the group's strong willingness to stabilise foreign exchange rates, particularly to curb excessive volatility in yen moves, with an eye on a possible joint currency intervention," Eiji Hirano told Reuters. Hirano, now a senior executive with Toyota Financial Services Corp., was assistant governor in charge of G7 talks until mid-2006.

Japan has not intervened in currency markets since 2004.