By Elaine Lies TOKYO (Reuters) - Japan's Nikkei average slid 6.4 percent on Monday to its lowest in 26 years, as the yen rose on the dollar to batter exporters such as Toyota Motor Corp (7203.T: Quote, Profile, Research, Stock Buzz) and banks were hit by concerns they would need to beef up their capital bases. Gains in the yen came despite a G7 warning about excessive volatility in the currency. That fed stock pessimism which in turn supported the yen. Pledges from the Japanese government for more steps to ease the strains on banks and strengthen rules on short-selling did little to ease the panic in the markets. "We need something that surprises the market in a good way, perhaps something like the government intervening to sell yen," said Masayoshi Okamoto, head of dealing at Jujiya Securities. "If we don't have something like this, today's low -- the 26-year low -- won't be significant at all." The Nikkei .N225 shed 486.18 points to close at 7,162.90, its lowest close since October 1982, in its fourth straight negative day. At one point it fell as far as 7,141.62. The benchmark has lost 36.4 percent so far this month and 53 percent this year. The broader Topix .TOPX was down 7.4 percent at 746.46. Shares of Mitsubishi UFJ Financial Group (8306.T: Quote, Profile, Research, Stock Buzz) tumbled after sources said it may need to raise up to $10.8 billion in capital to offset hefty losses on its stock portfolio. Other banks were also looking at securing more capital, newspapers reported. Asian shares also slid, hurt by the view that central bank policy moves, including a record rate cut in South Korea, were not enough to allay a global recession. "It's hard to see where the market will stop. If you consider valuations or any other sort of measure, the current levels are abnormal," said Takashi Ushio, head of the investment strategy division at Marusan Securities. The dollar slipped against the yen and was fetching around 93.20 yen as after having risen as high as 94.40 yen on a G7 warning against excessive volatility in yen exchange rates that raised the prospect of official intervention. Trade was active, with some 3.1 billion shares changing hands on the Tokyo Exchange's first section compared with last week's daily average of 2.1 billion. Declining shares outpaced advancing ones by more than 12 to one.

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