Consumer Reports said today it won’t recommend Apple’s latest version of the iPhone to potential buyers, citing a hardware flaw that causes its signal quality to degrade. The magazine said when a user touches a spot on the iPhone 4’s lower left side — where two pieces of the external antenna meet — the loss of signal strength can cause dropped calls in areas where AT&T’s network coverage is weak. The magazine said its engineers determined the problem by testing three separate iPhone 4s — bought at different retailers in New York City — in a controlled lab environment that blocks outside radio signals.

It also tested other AT&T phones the same way, including the iPhone 3G S and the Palm Pre, none of which had the signal-loss problems of the iPhone 4.

“Due to this problem, we can’t recommend the iPhone 4,” the magazine said in a blog post, though it touted the phone’s other features, such as its “sharpest display and best video camera we’ve seen on any phone.” Read more in Star Ledger.