By Yimou Lee and Ben Blanchard

TAIPEI (Reuters) - A strong Typhoon Kong-rey made landfall on Taiwan's east coast on Thursday, the largest storm by size to hit the island in nearly 30 years, closing financial markets, causing hundreds of flights to be cancelled and reducing rail services.

The typhoon knocked out power to nearly half a million households, the government said.

The storm hit the mountainous and sparsely populated east coast county of Taitung, according to Taiwan's Central Weather Administration, with strong winds and torrential rain affecting almost all the island.

The fire department reported one person had died when their truck hit a fallen tree in central Taiwan.

At one point a super typhoon, Kong-rey slightly weakened overnight but remained powerful as the equivalent of a Category 4 hurricane packing gusts of more than 250 kph (155 mph), according to Tropical Storm Risk.

Taiwan's weather administration put the typhoon's size at the biggest to hit the island since 1996. 

"I hope that everyone in the country will co-operate in avoiding disaster and refraining from engaging in dangerous behaviour such as wave watching during the typhoon," President Lai Ching-te wrote on his Facebook page. 

Administration forecaster Gene Huang said after hitting the east coast it would head towards the Taiwan Strait as a much weakened storm and urged people across the island to stay at home due to the danger of high winds. 

Environmental officials were working on Thursday to prevent oil leaking from a Chinese cargo ship beached against rocks on Taiwan's northern coast after losing power in turbulent weather.

Warnings for destructive winds of more than 160 kph (100 mph) were issued in Taitung, whose outlying Lanyu island recorded gusts above 260 kph (162 mph) before some of the wind-barometers there went offline.

"It was terrifying last night. Many people on the island didn't sleep, worrying about something happening to their house," Sinan Rapongan, a government official on Lanyu, also known as Orchid Island, told Reuters.

Some roofs had been damaged and more than 1,300 homes had lost power but so far no injuries had been reported, she added. 

Parts of eastern Taiwan recorded one metre (3.3 feet) of rainfall since the typhoon began approaching on Wednesday.

The defence ministry has put 36,000 troops on standby to help with rescue efforts, while almost 10,000 people have been evacuated from high risk areas ahead of time, the government said.

Taiwan Semiconductor Manufacturing Co, the world's largest contract chipmaker and major supplier to companies like Apple and Nvidia, said it has activated routine typhoon alert preparation procedures at all its factories and construction sites.

"We do not expect significant impact to our operations," it said in an emailed statement.

Taiwan's transport ministry said 314 international flights had been cancelled, along with all domestic flights.

Taiwan's high speed railway, which connects major cities on its populated western plains, continued to operate with a much reduced service.

Kong-rey is forecast to graze China along the coast of Fujian province on Friday morning. China's financial hub Shanghai is bracing for potentially the worst rains in more than 40 years.

Subtropical Taiwan is frequently hit by typhoons. The last one, Typhoon Krathon, killed four people earlier this month as it passed through the south of the island.