NEWYORK, Feb. 8 -- The euro fell toward the lowest level in eight months against the dollar on speculation mounting budget deficits in some European nations will keep policymakers from raising interest rates.

The euro approached a one-year low against the yen as concern about sovereign risk remain elevated even as Group of Seven finance ministers meeting on the weekend pledged to press ahead with economic stimulus measures. The Australian and New dollars weakened as Asian stocks fell, reducing demand for higher-yielding assets.

"As sovereign risks spread in the euro-zone, risk aversion will continue in the market," said Susumu Kato, chief economist for Japan in Tokyo at Calyon Securities, a unit of France's Credit Agricole SA. "Investors are wondering how financial issues in those small nations may affect bigger ones."

The euro fell to $1.3647 as of 9:01 a.m. in Tokyo from $1.3678 in New York on Feb. 5, when it declined to $1.3586, the lowest since May 20. The euro dropped to 121.84 yen from 122.09, after touching 120.71 on Feb. 5, the weakest since Feb. 24. The dollar was at 89.27 yen from 89.25 yen.

G-7 finance chiefs met in Iqaluit, Canada, as governments try to secure economic recoveries, while widening budget deficits threaten to hamper future expansion.

"We need to continue to deliver the stimulus to which we are mutually committed and begin looking at exit strategies to move to a more sustainable fiscal track," Canada's Finance Minister Jim Flaherty told reporters on Feb. 6.

ECB Rates

The European Central Bank left its benchmark rate at a record low of 1 percent on Feb. 4, and ECB President Jean-Claude Trichet signaled he is in no rush to raise borrowing costs.

Nikkei 225 Stock Average fell 0.9 percent today after declined for the past three weeks.

The euro also weakened for a fourth day against the dollar as futures traders raised bets to the highest level in more than a decade that Europe's currency will fall against the greenback, data from the Washington-based Commodity Futures Trading Commission showed on Feb. 5.

"The euro continues to feel the impact of escalating concerns over sovereign credit risk," Gareth Berry, a currency strategist in Singapore at UBS AG, wrote in a research note today. "Short euro positions held by futures traders have now reached record levels."

The difference in the number of wagers by hedge funds and other large speculators on a drop in the euro compared with those on a gain -- so-called net shorts -- was 43,741, on Feb. 2, the most since the euro's debut in 1999, compared with net shorts of 39,539 a week earlier.

Credit-default swaps on five-year sovereign bonds of Greece, Spain and Portugal rose to record levels last week. The cost of insuring against a Greece debt default advanced to 428.3. Credit swaps tied to Spain climbed to 170.8 and those on Portugal increased to 229.6, according to CMA DataVision prices.