The euro ceded earlier gains after hitting a one-week high versus the dollar and the yen on Tuesday after a surprise rise in German corporate sentiment, with bleak underlying economic conditions reasserting themselves.
Trade was volatile as short-term players took profits after the euro had gained sharply since the start of the week as a rise in financial shares had boosted risk sentiment.
"One spot of good news cannot make up for headlines showing dire economic conditions," said Geoffrey Yu, currency strategist at UBS, noting that economic and corporate data for the final quarter of 2008 are showing extremely weak readings.
"Short-term players are taking profits and it is still not the best environment for risk-taking."
Data from Germany's Ifo economic research institute showed its index for business climate index rose to 83.0 in January from an upwardly revised 82.7 in December, rising for the first time in eight months. [ID:nBEB002299].
"The sharp sentiment deterioration is close to a bottoming out. Nevertheless, the hard facts are still less encouraging," said Carsten Brzeski, economist at ING Financial Markets. Economists expect the German economy to contract by around 2 percent this year.
By 1220 GMT, the euro was flat against the dollar at $1.3160 after hitting a high of $1.3328 shortly after the Ifo data was released.
The euro was also flat at 117.24 yen after hitting the day's high of 119.45 yen, a level last reached on Jan. 19.
The euro was also hurt as European shares fell more than 1 percent on the day .FTEU3, and on dovish comments by an European Central Bank official.
ECB Governing Council member Guy Quaden was quoted as saying in a Belgian newspaper on Tuesday that the ECB is probably prepared to cut interest rates again.
