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By Don Curren

Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)–The euro continued to follow stock market fluctuations Wednesday, strengthening in mid-day trading as equities rallied and then slipping into negative territory late in the session in tandem with declines in stocks.

North American stocks flirted with outright losses in afternoon trading, but recovered very late in the day, with the Dow Jones Industrial Average closing up 48 points at 7837.

The British pound depreciated against the dollar as an appetite for risk earlier in the day succumbed to a more cautious attitude.

The Japanese yen advanced against both the dollar and the euro.

Trading flows were said to be light, and some analysts cautioned against reading too much into the market’s gyrations Wednesday.

“In general, the market’s been pretty lackluster and flows have been below average,” said Dustin Reid, director of G11 forex strategy at RBS Greenwich Capital Markets in Chicago.

A light data calendar in the U.S. has contributed to the lack of activity, as has a lack of conviction about underlying market direction on the part of many participants, he said.

Market activity is also thinning ahead of Good Friday holidays in various countries.

The euro reached a daily high at $1.3309 in early afternoon trading in association with stock market strength at that juncture after touching a session low at $1.1314 in overnight trading.

Late Wednesday, the euro was at $1.3245 from $1.3271 late Tuesday. The dollar was at Y99.67 from Y100.43, according to EBS. The euro was at Y131.96 from Y133.40. The U.K. pound was at $1.4677 from $1.4736, while the dollar was at CHF1.1493 from CHF1.1425.

Some analysts attributed the retreat in equities later in the day in part to the release of the minutes of the U.S. Federal Reserve’s Open Market Committee meeting last month, which reflected expectations of a slow recovery among decisionmakers at the U.S. central bank.

“Overall, participants expressed concern about downside risks to an outlook for activity that was already weak,” the minutes stated.

The minutes also showed officials were divided on just how much to ramp up purchases of mortgage and Treasury securities, although they eventually chose to pump more than $1 trillion into the economy.

Stewart Hall, market strategist at HSBC Securities Canada in Toronto, said the fluctuations in risk appetite and the resulting gyrations in equity markets will likely continue to dominate foreign-exchange trading.

Unlike last week, when data releases suggested economic stabilization was beginning to emerge in various countries, there has been relatively little guidance from economic reports in recent sessions, he said.

“Until you get a top-tier number coming out that tells you otherwise, and it really has to be a top-tier number, I think the swinging of the pendulum between fear and greed tends to trump all other inspirations,” Hall said.

RBS’s Reid said repatriation flows associated with the Japanese Homeland Investment Act, which was implemented last Wednesday, could be boosting the yen. “We could be seeing a bit of yen outperformance on the back of anticipated repatriation of Japanese assets,” Reid said.

News of a rating downgrade for Baltic States had only a fleeting impact on the euro.

Fitch Ratings downgraded the long-term foreign and local currency Issuer Default ratings – as well as the short-term foreign currency – of Estonia, Latvia and Lithuania by one notch.

“The only surprise to us was that the downgrades weren’t deeper, as we see eventual junk status (below BBB-) for all three,” said Win Thin, a senior currency analyst at Brown Brothers Harriman in New York.

Data overnight from Germany, the euro zone’s largest economy, showed German manufacturing orders fell more than expected in February, down a seasonally adjusted 3.5% on the month. In addition, German exports slumped 23.1% year-on-year in February.

-By Don Curren, Dow Jones Newswires; 416-306-2020; don.curren@dowjones.com

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