* Euro falls on lacklustre German PMI data
* Worries about Cyprus to weigh down on euro
* BoJ Kuroda offers no clues on an emergency meeting
By Anirban Nag
LONDON, March 21 (Reuters) - The euro fell on Thursday, after surveys showed the euro zone economy was struggling with weaker-than-expected German business activity data casting fresh doubts about a recovery in Europe's largest economy.
Worries about a banking collapse and uncertainty in Cyprus also loomed. But even before the situation in Cyprus blew up, the latest evidence showed euro zone economy in the midst of a deep slowdown and little signs of a recovery. All of which is likely to keep demand for the euro sluggish.
The euro dropped to a session low of $1.2879, nearing the four-month low of $1.28435 hit on Tuesday, before recovering to $1.2915, still down on the day. It also hit a five-week low against the British pound and at one point shed more than 1 percent against the yen.
Business surveys on Thursday showed that the euro zone's economic downturn deepened in March, contrary to expectations of a modest improvement, with most investors worried about slowing growth in Germany.
Germany's composite PMI fell in March, although it held above the 50 line that separates growth from contraction. But in France, the bloc's second-biggest economy, it sank to a four-year low.
"Today's data adds to the argument that loose policy will be needed to stay in place," said Chris Walker, currency strategist at Barclays. "We expect the euro to head lower."
Analysts said near term support lay around the 200-day moving average around $1.28775 with most investors looking to sell into any bounce towards the $1.30 level.
The most immediate fears of financial meltdown in Cyprus have eased for now, but the small island state is still scrambling to secure financial aid. It extended a bank lockdown to next week to prevent a run on banks and has turned to Russia for a lifeline.
FOCUS ON KURODA
The yen fell briefly after new Bank of Japan governor Haruhiko Kuroda vowed to take all possible measures available to achieve its 2 percent inflation goal in about two years.
"Kuroda's comments are relatively constructive and don't really disappoint expectations of further aggressive easing by the Bank of Japan," said George Saravelos, G10 FX strategist at Deutsche Bank. "Dollar/yen uptrend is very much intact and by this time next year, we forecast it to rise to 105 yen."
Still, the yen recovered and was up on the day as Kuroda offered little insight on whether he will call for an early policy board meeting ahead of the BOJ's next scheduled meeting on April 3-4.
The dollar was down 0.8 percent to 95.25 yen with Asian central banks looking to buy the dollar at dips.
Market expectations for aggressive monetary easing by the BOJ were still intact, traders said. That would keep the dollar near a peak of 96.71 yen last week, the greenback's strongest level versus the Japanese currency since August 2009.
The dollar's rise have been partly due to improved data from the United States, though on Wednesday the Federal Reserve reiterated its ultra-loose policy bias.
The Fed will continue to buy $85 billion in mortgage and Treasury bonds per month and Fed Chairman Ben Bernanke said the central bank would only slow the pace of its bond buying after the labour market shows sustained improvement.