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Asian Markets Turn Volatile as G-7 Ministers Call for Flexible Rates

Shares on Asia's majors markets took a tumble at the week's start after a Group of Seven finance ministers' statement called for more flexible exchange rates for certain currencies.

Export-oriented shares led declines on Tokyo's Nikkei 225 and South Korea's Kospi index, with more volatility expected in the early part of the week.

Both indexes ended more than four percent lower, the Kospi closing at 714 and the Nikkei ended the day at 10,475. Taiwan's tech-heavy Taiex index also slid more than one percent to end at 5,675.

Traders were reacting to the sharp appreciation in the yen, won, and Taiwan dollar against the U.S. dollar after the Group of Seven finance ministers and central bank governors, meeting Saturday in Dubai, said greater flexibility in exchange rates is "desirable" for some countries.

Equity analyst Daniel Yoo of Citigroup in South Korea says a weaker U.S. dollar hurts Asian exporting firms.

But, he added, the stock market losses are partly due to profit taking following weeks of gains.

"The implication is, yes, it is negative for [South] Korean exports … of course if the [South] Korean won does appreciate so much to the point where … it is at 1,100 [to the dollar], or even below, that would be a negative impact," he said. "But overall we think that this is totally [an] over-reaction."

On Monday the Japanese yen hit a 33-month high of 111 against the dollar.

Currency dealers in Japan say the G-7 statement suggests the Japanese monetary authority should stop intervening to keep the yen low. In July, Japan's monetary authority intervened to buy $17 billion worth of foreign currencies, attempting to slow the yen's rise.

Tokyo wants to prevent the yen from rising too high because an expensive currency reduces the competitiveness of Japanese exports.

United States and European leaders say repeatedly that cheap Asian goods hurt their domestic manufacturers and cost jobs. The United States is also urging China to loosen exchange controls on its currency, which is informally pegged at eight yuan to the dollar.

The G-7 is comprised of Britain, Canada, France, Germany, Italy, Japan, and the United States.

When meeting with Russia the organization is called the G-8.