* Dollar and euro gain against the yen
* Concerns grow over currency policies ahead of G20
* European shares flat, U.S. stocks to open higher
* Italy auctions first 30-year bond in two years
By Richard Hubbard
LONDON, Feb 13 (Reuters) - The dollar and the euro rose against the yen on Wednesday in volatile trade after a G7 statement on exchange rates, designed to calm talk of a currency war instead triggered fresh concerns.
The G7 reaffirmed its commitment to market-determined exchange rates and said fiscal and monetary policies must not be directed at devaluing currencies - comments which at first were seen as supporting the recent weakness in the yen.
However, an official from the group, which links the United States, Japan, Germany, Britain, France, Italy and Canada, later said Tuesday's statement was meant to signal concern about the yen's excessive moves.
"The world's in turmoil with regard to currencies and it doesn't really take a lot, in terms of a bad word here or there, to spark volatility," Peter Dixon global financial economist at Commerzbank said.
Analysts were also concerned about an apparent lack of consensus at the G7 level in tackling the risks of competitive currency devaluations as countries try to spur growth through expansionary domestic monetary policies.
A concern illustrated when the Bank of England governor Mervyn King publicly criticised the anonymous G7 official.
"When I put my name to that (G7) statement yesterday, I didn't expect that other so-called officials will be out there giving unattributable briefings,...trying to claim that the statement said what it didn't say," King said.
The dollar and the euro both initially fell against a resurgent yen on Wednesday but then recovered with the greenback up 0.2 percent at 93.66 yen. The common currency recovered more strongly to be up 0.5 percent at 126.35 yen .
There was also some good news for the euro area when data showed industrial production rose a surprisingly strong 0.7 percent in December from the previous month although it is down 2.4 percent for the year.
JAPAN CENTRE STAGE
The focus of the current concerns in the currency markets is Japan, where Prime Minister Shinzo Abe's government is pushing for aggressive policies by the Bank of Japan to beat deflation through monetary expansion.
Anticipation of the bolder measures has sent the yen down nearly 20 percent against the dollar since November, sparking comments from policymakers in the euro area about the impact on the common currency as the region struggles with a recession.
"Everyone would love a weaker currency, but it's a zero sum game. If you weaken the yen someone else has to suffer a stronger currency," said Dixon.
However, he added it was not just about the yen as there were concerns about the U.S. Federal Reserve's aggressive monetary expansion, which has weakened the dollar, and the Swiss central bank's move to cap rise in the franc against the euro.
The confusion sown by the G7 statement has heightened the risk that policymakers will use a G20 meeting in Moscow on Friday and Saturday to make further comments, either about the yen or the risk of wider currency devaluations.
"Presumably on the weekend there will be something that talks about the pace of moves in the yen. That's what the market is expecting now," said Geoff Kendrick, FX strategist at Nomura.
In the UK the Bank of England helped push down the British pound when it lowered its growth forecast and said it was open to more asset purchases. Sterling dropped 0.7 percent to $1.5544 .
The Bank's quarterly inflation report said the Monetary Policy Committee had "agreed that it stood ready to provide additional monetary stimulus if warranted by the outlook for growth and inflation."
Europe's share markets were little changed on Wednesday morning, hovering below the top of a six-day trading range, with investors more focused on mixed corporate results than moves in the currency markets.
The FTSE Eurofirst 300 index of top European companies was down 0.1 percent at 1,160.36 points. Around Europe, UK's FTSE 100 index and France's CAC 40 were unchanged, though Germany's DAX index was up 0.6 percent.
MSCI's world equity index was also flat at 356.65 points.
"We're in a lull right now, we've run out of positive catalysts and the great rotation out of fixed income and into equities hasn't really started," said David Thebault, head of quantitative sales trading, at Global Equities.
U.S. stock index futures did point to a slightly higher open on Wall Street, a day after President Barack Obama's State of the Union address, where he called for a $50 billion spending plan to create jobs.
ITALY DEBT SALE
Debt markets were also mostly steady as investors focused on an auction of 30-year bonds by Italy, its last debt sale before an imminent general election.
Italy's debt has been under pressure in recent weeks as a comeback in the opinion polls by former Prime Minister Silvio Berlusconi's party has raised the prospect of a fragmented parliament that could hamper the next government's reforms.
At the sale investors bought 888 million euros ($1.0 billion) of the new bonds and bid for 1.97 times the amount on offer, The bonds due in 2040 yielded 5.07 percent.
However, at a separate sale of three-year debt the government had to pay more than it did a month ago, in a sign that some investors fear that the Feb. 24-25 poll will result in a fragmented parliament.
Ten-year Italian yields were little changed on the day at 4.45 percent.
U.S. Treasuries were lower as traders prepared for an auction of $24 billion of 10-year bonds later in the day.
Many investors were also wary of putting on big positions in the U.S. debt market before retail sales data, due at 1430 GMT, which may reveal whether the higher payroll tax this year is encouraging people to hold onto more of their paychecks.