The euro plunged to a new 16-month dollar low on Thursday, as investors dumped the single currency on fears of a worsening eurozone debt crisis amid banking strains in Spain.

Shortly after 1000 GMT, the shared European unit slumped to $1.2831. That was the lowest level since September 14, 2010.

It also dived against the safe-haven Japanese currency to strike 98.58 yen -- last seen in December 2000.

"Investors are increasingly jittery that the fragile banking sector in Spain could prompt the need for external support, taken its toll on the single currency. Euro/dollar looks set to test $1.25 soon," said Nick Stamenkovic at RIA Capital Markets.

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