The euro fell to a new four- year low against the dollar yesterday on signs that the euro-zone’s debt crisis is spreading to its banking system. The European currency fell more than 7 per cent in May.

The European Central Bank warned yesterday that euro- zone banks faced up to €195 billion in a “second wave” of potential loan losses over the next 18 months due to the financial crisis.

The ECB said it had increased purchases of euro-zone government bonds.

Stronger-than-expected US manufacturing and construction spending data later boosted stocks and encouraged some investors to leave the perceived safety of the dollar and yen, allowing the euro to come off lows as the global session wound down.

In mid-afternoon trading in New York, the currency was little changed against the dollar at $1.2301 after dropping earlier to a four-year low of $1.2112. – (Reuters)