However, he attacked his critics for turning the affair into a public and political issue.

"Our private lives have been exposed to the extreme limits of what is allowable," he said.

Mr Toledo had pledged during his presidential campaign to take paternity tests to prove he was not the girl's father, but only after the election in 2001.

After he won, he backtracked and refused to take the test.

Mr Toledo and Zarai's mother, Lucrecia Orozco, were lovers, while the president was separated from his wife, with whom he also has a daughter, now aged 20.

Zarai Toledo met her father for the first time on Friday.

After watching his speech on TV, she said: "He said the truth. He expressed everything he had to say."

$100,000 settlement

Reports from Peru say Mr Toledo - the first Peruvian president of native Indian origin - has agreed to pay around $100,000 to his daughter and her mother, who arrived in Lima on Thursday apparently for negotiations.

Ms Orozco said in her radio interview that she would use the money settlement to create a foundation for children fighting paternity suits.

"My daughter represents many children in Peru who are having these problems," she said.

"All fathers must be responsible."