NEW YORK (Bloomberg) — The euro reached the lowest level against the dollar in three months on speculation financial turmoil in eastern Europe may deepen the recession in the 16 nations that use the currency.

The yen fell for a fourth week against the dollar and dropped versus the euro as the biggest contraction in Japan"s economy since the 1974 oil shock eroded demand for the currency as a haven from the global recession. Mexico's peso tumbled to a record low versus the dollar after the central bank cut the target lending rate less than economists forecast.

"We are now moving very specifically to euro concerns," said Simon Derrick, chief currency strategist in London at Bank of New York Mellon Corp., in an interview on Bloomberg Television. "The idea that we could see another 10 percent drop in the euro makes perfect sense to me."

The euro fell 0.3 percent last week to $1.2826 from $1.2862 on February 13. The currency touched $1.2513 on February 18, the lowest level since November 21, and lost 8.2 percent in 2009. The yen declined 1.5 percent to 93.35 per dollar from 91.93, touching 94.46 on February 19, the weakest level since January 6. The yen lost 1.1 percent to 119.68 against the euro from 118.37.

Mexico's peso dropped 1.5 percent to 14.7774 versus the dollar and touched 14.9855, the weakest level ever, after the central bank cut the target lending rate yesterday by a quarter-percentage point to 7.50 percent. The median forecast of 24 economists surveyed by Bloomberg News was for a reduction of a half-percentage point.

The yen weakened last week after Japan"s Cabinet Office said on February 16 that gross domestic product shrank at an annual pace of 12.7 percent in the fourth quarter, the biggest decline in 35 years. The median forecast of 26 economists surveyed by Bloomberg News was for an 11.6 percent decline.

Japan's currency dropped 2.1 percent to 134.71 versus the pound and 1.6 percent against the Norwegian krone. The yen is usually attractive in times of turmoil on speculation Japan's current-account surplus will minimize the nation's reliance on overseas lenders.

The euro dropped 1.7 percent versus the dollar on February 17, when Moody's Investors Service said the credit ratings of Austrian, Swedish and other banks with subsidiaries in eastern Europe may be cut as economies in the region deteriorate.

German Finance Minister Peer Steinbrueck told reporters the next day that "we would show our ability to act" should countries in the euro region face problems and added that betting on a breakup of the currency "is absolutely absurd".

The Finance Ministry said yesterday in an e-mail statement that it has "no doubts" about the cohesion of the region using the euro, while its member countries need to cut deficits to make themselves more competitive. A report in Germany"s Der Spiegel magazine saying the ministry is examining ways to bail out distressed countries "doesn"t correspond with the facts", according to the statement.

Poland's zloty touched a five-year low of 4.9307 per euro on February 17, and the Czech koruna reached 29.68, the weakest level since October 2005. The zloty dropped 2.1 percent last week, while the koruna depreciated 0.7 percent.

Ireland, Spain and Portugal are most at risk of credit- rating cuts as the global financial crisis batters Europe's weakest economies, ING Groep NV said last week.

A joke in the currency market, said Boris Schlossberg, New York-based director of currency research at online foreign- exchange trader GFT Forex, is "What's the difference between Ireland and Iceland?" The answer is one letter and the fact that Ireland's in the euro zone, he said.