The euro set a low for the year against the dollar yesterday, undermined by Turkey's decision to cut the lira loose from its currency peg and allow the Turkish currency to float freely.

The Turkish lira plunged 30.5 per cent to 991,000 lira to the dollar from 689,000 lira the previous day, after the government abandoned the currency peg, in the face of a massive outflow of funds.

Analysts said the Turkish devaluation caused concern for European banks which had loans outstanding to Turkey. The single European currency was selling for $0.9069, from $0.9087 in late New York trading on Wednesday.