* Euro falls on lackluster German PMI data * Worries about Cyprus also weigh on euro * BoJ Kuroda offers no clues on an emergency meeting By Gertrude Chavez-Dreyfuss NEW YORK, March 21 The euro fell against most currencies on Thursday after surveys showed a struggling euro zone economy, with softer-than-expected German business activity data casting doubts about a recovery in Europe's largest economy. Worries about a banking collapse and uncertainty in Cyprus also loomed. But even before Cyprus erupted, the latest evidence showed euro zone economy in the midst of a deep slowdown and little signs of a recovery likely to keep demand for the euro sluggish. "Euro/dollar has been trading within a narrow range and is holding up pretty well and I think this has something to do with peripheral bond yields in Spain and Italy which have been well-capped. This goes to show that there has been limited contagion from Cyprus," said Vassili Serebriakov, currency strategist, at BNP Paribas in New York. "What we do see is interest in selling the euro on the crosses after the weak euro zone data, so euro/Aussie and euro/Canada are getting hit." The euro dropped to a session low of $1.2879, nearing the four-month low of $1.2843 hit on Tuesday, and was last at $1.2904, down 0.2 percent 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. The euro was last at 85.21 pence, down 0.5 percent, while it last traded at 122.76 yen, down 1.1 percent. The single euro zone currency also dropped 0.7 percent against the Australian dollar at A$1.2374, falling 0.4 percent to C$1.3210 versus the Canadian currency. 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 for the euro against the dollar around $1.28775 with most investors looking to sell into any bounce toward 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. The European Central Bank also gave Cyprus until Monday to raise 5.8 billion euros to clinch a bailout deal or face losing emergency funds for its banks and inevitable collapse. FOCUS ON KURODA The yen fell briefly after the 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. Still, the yen recovered and was up on the day, with the dollar down 0.9 percent to 95.16 yen. Asian central banks were said to be looking to buy the dollar on dips. Kuroda also said that the BoJ does not have to rely on currency moves to escape deflation and offered little insight on whether he will call for an early policy board meeting ahead of the bank's next scheduled meeting on April 3-4. BNP's Serebriakov said Kuroda's comments were less dovish than markets had anticipated. "The market has a very high bar for dovishness from the BoJ, so when he said that the bank does not need to rely on a weak yen to beat deflation, that kind of was a letdown." Market expectations for aggressive monetary easing by the BOJ remained intact however, 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 labor market shows sustained improvement.