By Eric Burroughs TOKYO (Reuters) - The yen climbed toward an all-time high against the Australian dollar on Monday as investors kept dumping risky positions and drove Tokyo shares to a 26-year low, overshadowing a G7 warning about excessive yen volatility. Group of Seven finance ministers and central bank governors singled out the excessive volatility of the yen and said they were concerned about its implications for economic and financial stability, adding that they will monitor markets closely. Analysts said the G7 statement suggested authorities were getting closer to the point where they would consider intervention, possibly jointly, to stem the yen's gains from market players unwinding carry trades en masse. The yen has struck a 13-year peak against the dollar, a six-year peak against the euro and many other milestones in its roughly 20 percent surge on a trade-weighted basis this month. .IBOXXFXJPY The Australian dollar's plunge prompted the country's central bank to intervene on Friday to provide liquidity and help prop up the battered currency, stirring speculation that more authorities will step in. "If the dollar falls below 90 yen, financial authorities are likely to intervene in the forex market," said Masafumi Yamamoto, head of FX strategy for Japan at Royal Bank of Scotland. "A dollar drop below 90 yen could accelerate the yen's rise, having a bad impact on share prices." Some traders said Japan was more likely to go it alone on such intervention than with others such as European countries, which may prefer a weaker euro to soften the blow of a recession. Japan last intervened in March 2004 to stem yen strength. "While Japan may launch intervention alone, it is not likely to have a lasting impact on the forex market," said Minoru Shiori, chief manager of forex trading at Mitsubishi UFJ Securities. Earlier in the day Japanese Finance Minister Shoichi Nakagawa said he was watching currencies with "great interest" -- an indication the ministry is on a heightened state of alert when it comes to potential intervention. Carry trades -- using the low-yielding yen to buy everything from higher-yielding currencies to stocks and commodities -- have collapsed in the past few weeks as market players have been forced to sell many assets to raise cash. The Aussie -- the carry trade favorite until just a few months ago as commodities soared -- has lost almost a third of its value in October. Currency moves remained large because few market players were bold enough to take the other side of trades. The dollar fell 1 percent from late U.S. trade last week to 93.29 yen, pulling back after rising to near 94.50 yen after the G7 warning. On Friday the U.S. currency slid to a 13-year low of 90.87 yen on trading platform EBS during the yen's panicky surge. The euro was down 1.8 percent at 116.82 yen, near a six-year low of 113.79 yen hit on Friday. Against the dollar, the euro dropped 0.7 percent to $1.2528, near a two-year low. The Australian dollar shed 2 percent to $0.6099, back near a six-year low. Against the yen, the Aussie fell 3.2 percent to 56.85 yen after sinking to 55.11 yen on Friday -- the lowest since it was allowed to trade freely. The yen's surge has reinforced a sell-off in Japan's Nikkei share average .N225 that drove it to a 26-year low on Monday and down by half this year on worries about damage to the export-dependent economy. The Nikkei shed 6.4 percent, with bank shares taking a hit on reports that Japan's top three banks will raise capital as the stock market plunge hits their capital base. Hedging tied to structured notes sold to individual investors and Japanese regional banks as part of the carry trade has added fuel to the sometimes disorderly moves in Aussie/yen. Forced selling of stocks and currencies, particularly in hard-hit emerging market countries, has swamped financial markets and led to historic volatility across many assets. The dollar has also soared against most other currencies, reaching a six-year high against the pound, as investors have unwound positions in many markets and boosted cash holdings in the greenback for investor redemptions. ($1=93.87 Yen) (Additional reporting by Rika Otsuka; Editing by Michael Watson)

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