* G7 statement and later remarks roil yen * G7 official: Group statement was "misinterpreted" * Equities marginally higher ahead of Obama speech * Markets shrug off North Korea nuclear test By David Gaffen and Wanfeng Zhou NEW YORK, Feb 12 (Reuters) - The yen rallied on Tuesday, reversing the previous day's late sell-off against the dollar and euro after an official with the Group of Seven said it is worried about excess moves in the Japanese currency. World stock markets edged higher, led by European shares. The S&P 500 index held near multi-year highs as investors looked ahead to President Barack Obama's State of the Union address On Tuesday evening. The G7, in a statement, urged countries to refrain from competitive devaluations, saying it remained committed to "market-determined" exchange rates. This was in reaction to weeks of concern that the new Japanese government's monetary easing policy, which has also weakened the yen, could trigger far-reaching currency wars. However, the market interpreted the statement as a sign that the G7 supported Japan's moves, prompting an official from a G7 nation to say later that the group "is concerned about unilateral guidance on the yen." The comments - meant to clarify the G7 statement - sparked a rally in the yen against the dollar and euro. "Having asserted on Sunday evening that G20 would seek to 'calm' markets over talk of currency wars, the first ad-hoc attempt to do so this morning has been a dismal failure," said Richard Gilhooly, analyst at TD Securities in New York. "Rather than calm the markets, the poorly communicated statement has significantly raised volatility and now we have to wait to see the actual outcome of G20 on the weekend." The dollar was down 0.8 percent against the yen at 93.51 , having risen to 94.42 yen on Monday, according to Reuters data, the highest since May, 2010. The euro fell 0.5 percent to 125.77 yen, after a 2 percent rally on Monday. The G7 must go into this weekend's G20 meetings forcefully pressing major emerging economies to adopt flexible foreign exchange rates, Bank of Canada Governor Mark Carney said on Tuesday. Tokyo is likely to come under serious pressure when G20 finance ministers and central bankers meet in Moscow at the end of the week, not least because the United States is employing similar policies. Japanese Finance Minister Taro Aso welcomed the statement, saying it recognized Tokyo's policy steps were not "aimed at influencing currency markets." U.S. Treasury official Lael Brainard said on Monday that while competitive devaluations should be avoided, Washington supported Tokyo's efforts to reinvigorate growth and end deflation. MSCI's global share index was up 0.5 percent at 356.40. European shares gained 0.6 percent to close at 1161.46, led by UK banks after Britain's third-biggest lender, Barclays, unveiled cost cuts and a strategic overhaul. Housing stocks led Wall Street higher. The Dow Jones industrial average gained 57.74 points, or 0.41 percent, at 14,028.98. The Standard & Poor's 500 Index was up 3.21 points, or 0.21 percent, at 1,520.22. The Nasdaq Composite Index was down 2.58 points, or 0.08 percent, at 3,189.42. STATE OF THE UNION The economy will be a major topic of Obama's speech before a joint session of Congress set for 9 p.m. (0200 GMT Wednesday). Investors will listen for any clues about a deal with Republicans to avert automatic spending cuts due to take effect March 1. Benchmark 10-year Treasury notes fell 5/32 in price to yield 1.98 percent, up from 1.96 percent late on Monday, as investors prepared to absorb $72 billion in new debt supply this week. In European bond markets, Spanish and Italian bonds inched up as domestic buyers took advantage of a recent sell-off. But the recovery looked fragile, given political uncertainty in both countries. The euro rose 0.3 percent to $1.3447, accelerating gains after European Central Bank President Mario Draghi said there is no such thing as a currency war and that Spain was on the right track toward economic recovery. Oil prices rose as OPEC said world oil demand will grow more quickly than previously thought this year. Brent oil rose 18 cents to $118.31 a barrel and U.S. crude was up 48 cents to settle at $97.51 a barrel. Spot gold clawed back from its lowest in over a month and was last at $1,651 an ounce. Financial markets showed a muted reaction to news that North Korea conducted a nuclear test and said it would never bow to U.N. resolutions.