* Risk appetite increases, helps Canadian dollar rise
* Bonds gain as stocks fall, await Fed statement
TORONTO, March 18 (Reuters) - The Canadian dollar rose against the U.S. dollar on Wednesday morning, extending recent gains made on improving risk sentiment.
The Canadian dollar has largely been tracking North American stock markets, and much of its stronger tone since hitting a 4-1/2 year low last week has come on the back of a string of higher closes on equity markets.
Although U.S. and Canadian equity markets opened lower on Wednesday, the Canadian dollar held on to most of its gains as the euro rose versus the dollar to trade above $1.31 for the first time since January. [ID:nN18342829]
At 9:45 a.m. (1345 GMT), the Canadian dollar rose to C$1.2649 to the U.S. dollar, or 79.06 U.S. cents, from C$1.2688 to the U.S. dollar, or 78.81 U.S. cents, at Tuesday’s close. At one point, the currency rallied as high as C$1.2610 to the U.S. dollar, or 79.30 U.S. cents.
“We’re seeing some indications of improving tone in equity markets, resulting in funds moving out of the U.S. dollar. A number of other currencies are benefiting, including the Canada, as markets become a bit more sure that the depths of this downturn may be contained,” said Paul Ferley, assistant chief economist at Royal Bank of Canada.
The optimism on equity markets in recent days has underscored a decline in risk aversion and has overcome Canadian data that has reinforced views that the economy is undergoing a major slowdown.
The market shrugged off news on Wednesday that a plunge in the auto sector helped slash wholesale trade in Canada by a worse-than-expected 4.2 percent in January from December’s level. [ID:nN18335629]
Canadian bond prices nudged higher on Wednesday as equity markets fell sharply, but gains were limited as investors waited for the U.S. Federal Reserve’s policy statement later in the day.
Bond prices typically trade inversely to stocks.
Investors are also eager to see what the Fed has to say about steps it might take to restart credit flows, while expectations are high that it will keep its benchmark rates at virtually zero.
The Fed’s policy-setting panel is due to outline its views at the conclusion of its two-day meeting around 2:15 p.m. (1815 GMT). [ID:nN18342185]
The two-year bond was up 1 Canadian cent at C$102.92 to yield 1.015 percent. The 10-year bond rose 5 Canadian cents to C$107.15 to yield 2.932 percent.
The 30-year bond rose 25 Canadian cents to C$124.00 to yield 3.632 percent. The U.S. 30-year bond yielded 3.754 percent. (Reporting by Ka Yan Ng; Editing by Peter Galloway)