TAIPEI, Aug 7, 2009 (AFP) - Taiwan's financial markets were shut and flights cancelled Friday as Typhoon Morakot approached the island unleashing powerful winds and heavy rain.

All domestic flights and trains were cancelled until noon while some flights to China, Hong Kong and Macau were disrupted, the airlines said.

Offices and summer schools on the main island were shut down and most weekend outdoor festivities postponed, authorities said.

The weather bureau warned residents of flooding and mudslides as Morakot, which means "emerald" in Thai, is expected to generate up to 1,200 millimetres (47 inches) of rain.

More than 300 people in northern Taoyuan county were evacuated to safety as a precaution and around 1,000 fishermen were taking shelter on land, according to the National Fire Agency, which coordinates rescue work.

At 8:30 am (0030 GMT), the typhoon was 200 kilometres (124 miles) southeast of northeastern Ilan county, moving west-northwest at 12 kilometres per hour and packing gusts of 144 kilometres per hour.

The bureau warned that the typhoon's impact is prolonged as it is moving slowly and could make landfall in the northeast in the evening if it keeps to the forecast course.

Taiwan is typically hit by a dozen or so typhoons in the summer which help replenish its water supply. The island's authorities expected Morakot to bring sufficient rains to help avert an imminent drought.

Tropical storm Linfa grazed the island in June and left four people injured.