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LONDON, Apr 24 (Reuters) The dollar slid sharply to a three-month low against the yen and a seven-month low versus the euro on Monday after Group of Seven powers said China should let its yuan appreciate as a way of fixing global imbalances.

The yen climbed around 1.3 percent against the dollar and 1 percent on the day versus the euro which gained additional support as comments from Qatar and Russia added to speculation that central banks are shifting their reserves away from the dollar.

However, the yen's rally stalled slightly after Japan signalled its displeasure at the rapid move when Vice Finance Minister Koichi Hosokawa said he was watching forex moves with ''strong interest'' and would always take appropriate action on forex as needed, a signal that .

''The G7 meeting highlighted the dollar's vulnerability to concerns about global imbalances,'' Bank of America currency strategist Kamal Sharma said.

''It didn't add anything hugely new to the debate but there's ongoing pressure on China,'' he added.

Finance ministers of the world's biggest economies called for major exporting nations to allow their currencies to rise against the dollar to help resolve the imbalances, highlighted by the massive U.S. trade deficit and China's booming surplus.

The G7's remarks came as investors view of the U.S. currency soured and as global imbalances took centre stage in the lead up to the Washington meetings.

But some analysts said the effect on the dollar may be limited as Chinese officials have made clear they will reform the yuan at their own pace, while the G7 stopped short of laying out concrete action to correct trade imbalances.

By 0830 GMT, the dollar had fallen as low as 114.87 yen -- the lowest since January before stabilising around 115.96 after Hosokawa's comments.

The euro slid to 142.43 yen, well away from a record high of 145.51 struck last week.

But the single currency hit a fresh seven-month peak at $1.2409.

EURO MOMENTUM BUILDS The euro got a boost as yet another central bank said it was shifting reserves away from the dollar.

Qatar's central bank said on Sunday it had been buying euros in the foreign exchange market and could keep building its holdings of the European currency until they make up 40 percent of reserves.

Last week Sweden's central bank, the Riksbank, said it had cut the share of dollars in its $21 billion of foreign exchange reserves in favour of the euro.

''We are seeing a dollar bearish move unfolding. The reserve story will support the euro from all angles,'' said Ian Stannard, currency strategist at BNP Paribas.

Also, Russia will be able to start investing its rouble-denominated oil stability fund in AAA-rated government securities, dollars, euros and pounds after Prime Minister Mikhail Fradkov signed a law on investment rules, Finance Minister Alexei Kudrin told Reuters.

Kudrin on Friday questioned the dollar's pre-eminence as the world's ''absolute'' reserve currency.

More difficulties were seen for the dollar this week as the market was also expected to focus on the outlook for short-term interest rates, with European Central Bank chief Jean-Claude Trichet and Federal Reserve Chairman Ben Bernanke both slated to speak this week.

Trichet gives a talk at the Council on Foreign Relations in New York at 2200 GMT.

The dollar has suffered from mounting expectations the Fed will soon end a nearly two-year campaign of raising rates while the ECB is poised to keep tightening through the year.

The U.S. currency was also hurt after Osama bin Laden said in an audiotape attributed to him that the West was waging war against Islam.

The Fed is widely seen lifting overnight rates to 5 percent in May, what would be a 16th straight interest rate increase.

GRADUALISM The G7 said that greater currency flexibility -- code for appreciation -- is desirable in emerging economies with large current account surpluses ''for necessary adjustments to occur''.

Chinese central bank governor Zhou Xiaochuan said over the weekend that the yuan could probably begin to rise more swiftly but gradualism was still the guiding philosophy.

Since China revalued the yuan last July, the currency has gained only about 1 percent against the dollar even as Beijing has set up an infrastructure for more flexible trade in the future, including the launch of a currency swap market on Monday.

REUTERS CS GC1447