new york (Bloomberg) — The dollar fell the most against the euro since December on speculation the worst of the US banking crisis may be over, reducing demand for the greenback as a refuge from global financial turmoil.

The Swiss franc posted a record decline against the euro this week after the Swiss National Bank started buying currencies on March 12 to stem its appreciation. The yen fell for a fourth week against the euro as US stocks had their biggest rally since November, encouraging speculation Japanese investors bought higher-yielding assets overseas.

"Positions are favouring a rally in risky assets," said Aroop Chatterjee, a currency strategist at Barclays Capital Inc. in New York. "The seeds for a recovery have been sown."

The US currency lost 2.1 percent to $1.2928 per euro from $1.2653 on March 6. The yen weakened 1.9 percent to 126.65 per euro from 124.34 in the longest stretch of weekly losses since early January. Japan's currency gained 0.3 percent to 97.95 per dollar from 98.25. The franc dropped 4.5 percent to 1.5320 against the euro from 1.4657, the biggest decline since the 16- nation currency was introduced in 1999.

The Dollar Index, which the ICE uses to track the greenback's performance against the currencies of six major US trading partners, fell 1.2 percent to 87.428, the biggest weekly loss since December. It reached 89.624 on March 4, the highest level since April 2006.

Bank of America Corp. chief executive officer Kenneth Lewis told reporters after a speech in Boston on March 12 that his company was profitable in January and February, joining JPMorgan Chase & Co. and Citigroup Inc. in signalling the three biggest US banks are recovering from a dismal 2008.

Citigroup CEO Vikram Pandit ignited a 10.7 percent rally in the Standard & Poor's 500 Index when he said in an internal memo early this week that his bank turned a profit in the first two months of 2009.

"The talk of gloom and doom starts to dissipate after the banks said they are still making money," said Matthew Kassel, director of proprietary trading at ING Financial Markets LLC in New York. "People sitting on a lot of long yen positions will start to square up." A long position is a bet that a currency will appreciate.

Sweden's krona was the biggest gainer versus the dollar this week, appreciating 6.7 percent to 8.6241 on a global rally in stocks. The currency slid to 9.3309 on March 5, the weakest level since October 2002, on concern write-downs on about $100 billion of Swedish banks' holdings in eastern Europe states will strain government budgets and curb lending.

The yen dropped 7.9 percent against the dollar in February even as the Standard & Poor's 500 Index plunged 11 percent. Evidence Japan's economy was spiralling deeper into a recession eroded demand for the yen as a refuge from financial turmoil. Japan's government reiterated on March 12 that the economy contracted last quarter at the fastest pace since 1974.

"I'm still pretty bullish on dollar-yen," said Jessica Hoversen, a foreign exchange analyst with MF Global Ltd. in Chicago. "Their economy looks as bad as ours and possibly worse." The yen may fall to 100 against the dollar as soon as next week, she predicted.

The yen weakened 4.5 percent to 9.8199 per South African rand, 4.1 percent to 51.50 versus New Zealand's dollar and two percent to 77.07 against Canada's dollar this week.