LONDON, Oct 6, 2008 (AFP) - The euro plunged to fresh lows against the dollar Monday as European leaders scrambled to limit the impact of a growing financial crisis on the eurozone banking system.

Dealers said very sharp losses -- many of them record one-day falls -- on European stock markets reflected panic trade as investors sought safety where they could, with the dollar a prime beneficiary.

The dollar, the world reserve currency continues to attract huge sums as players look to its traditional safehaven qualities despite the United States being at the epicentre of the financial storm now threatening global recession.

Dealers said the turmoil was unprecedented, with every government step taken to stem the tide seeming only to make matters worse by increasing the level of anxiety people feel over the turn of events.

There were high hopes last week that passage of a 700-billion-dollar US bank bailout plan would draw a line under the crisis and encourage banks to resume lending again but its passage on Friday seemed quickly forgotten on Monday.

In late European trade, the euro was at 1.3509 dollars, recovering from a low of 1.3472 dollars -- its weakest level in 14 months -- but well down from 1.3781 dollars in New York late on Friday.

Dealers said sentiment on the euro was badly hit by a loss of confidence as European leaders tried to reassure the markets and savers that the crisis could be contained.

A meeting of France, Britain, Germany and Italy in Paris notably failed to steady the ship while news of a fresh German bailout of mortgage specialist Hypo Real Estate costing 50 billion euros only added to the negative tone.

'The challenges facing the European financial sector, along with worries that the official responses over the weekend lack sufficient co-ordination, are weighing considerably upon most European currencies,' Barclays Capital analysts said in a note,

'The financial crisis remains acute after the weekend European Summit failed to produce a plan and the German rescue package for Hypo Real Estate. The news is forcing European banks to continue to de-leverage out of euros and other currencies and into dollars,' Brown Brothers Harriman analysts said.

Dealers said all eyes now are a Group of Seven finance ministers meeting in Washington on Friday in the hope something can be done to stop the rot given that approval Friday of a massive US bailout plan failed to convince.

'The deepening banking crisis in the eurozone keeps the euro under selling pressure not only versus the dollar but also versus sterling and the yen,' said Dresdner Kleinwort analyst Michael Klawitter.

'Market participants remain concerned about domino effects in the banking system.'

In London trade on Monday, the euro changed hands at 1.3509 dollars against 1.3781 late Friday, 136.76 yen (145.16), 0.7707 pounds (0.7775) and 1.5475 Swiss francs (1.5557).

The dollar stood at 101.28 yen (105.27) and 1.1441 Swiss francs (1.1287).

The pound was at 1.7387 dollars (1.7722).

On the London Bullion Market, the price of gold jumped to 875.50 dollars an ounce from 828 dollars late Friday.