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TOKYO, May 8 (Reuters) The dollar shed nearly 1 percent to an eight-month low against the yen on Monday after a top U.S.

Treasury official suggested that Japanese policymakers should refrain from intervening verbally on currencies.

Timothy Adams, the U.S. Treasury's undersecretary for international affairs, said at the Asia Development Bank's meeting in India last week that it was appropriate Japan had not intervened to keep the yen from strengthening since March 2004 but ''we should all refrain'' from commenting on exchange rates.

The remarks were seen as a signal Washington wants the dollar to weaken against the currencies of countries with hefty trade surpluses, especially in Asia, as a way to help fix global imbalances.

In the past two weeks the dollar has tumbled since the Group of Seven industrial powers called for countries with trade surpluses to allow more currency appreciation, throwing the spotlight back on the threat of the massive U.S. deficits.

As the yen has rallied, Japanese officials have repeated that excessive volatility in exchange rates is undesirable and that they are keeping a close eye on the market. Finance Minister Sadakazu Tanigaki said on Monday that Japan's stance was unchanged.

Masafumi Yamamoto, currency strategist at Nikko Citigroup, said Japanese officials would keep up their warnings to the currency market but were unlikely to intervene, given the yen's broad weakness and the Bank of Japan's move toward raising rates.

The yen hit a 20-year low in April on a trade-weighted and inflation-adjusted basis, according to BOJ data.

''There's no reason to justify intervention,'' he said.

Japan spent 35 trillion yen ($312.4 billion) in the 15 months to March 2004 to stem the yen's gains against the dollar and keep the economy's bout of deflation from worsening, but since then Tokyo has not intervened.

Japanese markets reopened on Monday after a break that started on Wednesday for the country's Golden Week holidays.

In early trade, the dollar was down about 0.6 percent at 111.90 yen after sliding as low as 111.64 yen, according to Reuters data, the weakest since mid-September last year.

The U.S. currency has shed nearly 6 percent against the yen in just three weeks and is down 5 percent for the year.

The euro shed about a yen from late New York levels on Friday to 142.25 yen.

Against the dollar, the single currency was steady around $1.2720, just below a one-year peak of $1.2765 struck on Friday.

The pound changed hands at $1.8595 after striking a one-year high of $1.8654 in early action.

Investors have interpreted last month's G7 statement on currencies as an implicit call for a dollar drop, even as officials have taken pains to say that markets have misunderstood the G7's intentions.

Japan's vice finance minister for international affairs, Hiroshi Watanabe, told Reuters on the sidelines of the ADB meeting that the Federal Reserve, European Central Bank and Japan all agree the G7 statement did not point to a dollar fall.

Dollar sentiment has also soured as the Fed prepares to wrap up a two-year credit tightening campaign and on talk of central banks diversifying reserves away from the U.S. currency.

The Fed has signalled that an end to the 15 straight interest rate increases since June 2004, which helped the dollar rally last year, is likely around the corner Data on Friday showing that U.S. businesses added 138,000 jobs in April, far below forecasts for a gain of 200,000, further fueled expectations the Fed will soon pause the long credit tightening campaign.

The Fed meets on Wednesday and is expected to bump up rates to 5 percent but tweak its post-meeting statement to flag a pause is coming up.

By contrast, the ECB is set to raise rates in June and later in the year after ECB chief Jean-Claude Trichet said last week that ''strong vigilance'' is needed to keep inflation under wraps.

Reuters VJ VP0745