* Cyprus scrambles to avert financial collapse
* Euro zone manufacturing sector deteriorates in March
* China, U.S. economic data more supportive
* Coming up: CFTC positions data 3:30 p.m. EDT Friday (Recasts, updates with settlement prices, Iran detail, paragraphs 1,6-8,19-21)
By Robert Gibbons
NEW YORK, March 21 Crude oil prices fell more than 1 percent on Thursday as Cyprus struggled to raise enough money to qualify for a bailout and avoid a banking collapse, reviving worries about the outlook for petroleum demand in Europe.
The European Union has given Cyprus, the debt-laden Mediterranean island, until Monday to raise billions of euros it needs to receive an international bailout or face the collapse of its financial system and likely exit from the euro currency zone.
"Definitely, the euro zone factors are weighing on crude," said John Kilduff, partner at Again Capital LLC in New York.
Adding to concerns about Europe, the euro zone's economic downturn has deepened in March - even before the Cyprus crisis became acute - data from survey compiler Markit showed.
The problems in Europe and the precarious situation in Cyprus countered support from more positive economic data from the United States, where existing home sales and leading economic indicators rose last month.
Brent May crude fell $1.25, or 1.15 percent, to settle at $107.47 a barrel, having traded as low as $107.08.
U.S. May crude fell $1.05, or 1.12 percent, to settle at $92.45 a barrel, after falling as low as $91.84. The U.S. April crude contract expired and went off the board on Wednesday.
Brent's premium to U.S. crude fell as low as $14.61 during the session, before ending at $15.02 based on the contract settlements and narrowing the spread by 20 cents.
MIXED GLOBAL ECONOMIC DATA
Flash euro-zone manufacturing data showed unexpected declines in March, driven by surprise weakness in the German and especially French purchasing managers' indices (PMI).
Most responses in Markit's business survey were received before Cyprus pushed the 17-nation currency bloc into fresh turmoil and analysts said respondents may now be even more gloomy.
The Flash Eurozone Composite Purchasing Managers' Index fell to 46.5 in March, lower than all forecasts in a Reuters poll of 23 economists.
More supportive U.S. data released later in the session did little to improve investor sentiment.
The number of Americans filing new claims for jobless benefits edged higher last week, but a trend reading dropped to its lowest in five years.
Business conditions in the U.S. mid-Atlantic region rose to the highest level since September, according to a survey from the Federal Reserve Bank of Philadelphia, and U.S. housing market data also pointed to a recovery.
Chinese data also was viewed as supportive to oil futures, as better-than-expected manufacturing figures pointed to an improved fuel demand outlook in the world's second-largest oil consumer.
"The Chinese data is better than expected but it's not extraordinary," said Olivier Jakob, oil analyst at Petromatrix in Zug. "Crude oil imports in China for the first two months were lower than last year."
In China, the HSBC Purchasing Managers' Index for March revived to 51.7 in March from 50.4 in February, but remained below a two-year high of 52.3 reached at the beginning of the year.
The reading is consistent with year-on-year GDP growth of around 8 percent, according to a Credit Agricole-CIB analyst, above the 7.5 percent GDP growth target for 2013 released at China's annual legislative session this month.
IRAN NUCLEAR PROGRAM DISPUTE
A warning from Iranian Supreme Leader Ayatollah Ali Khamenei that the Islamic Republic would destroy the Israeli cities of Tel Aviv and Haifa if Iran's nuclear infrastructure came under attack from the Jewish state did not prevent crude oil prices from dropping.
Russia said on Thursday that Iran and six global powers made progress in expert-level talks this week to ease the standoff over Tehran's nuclear program, but noted that there was no breakthrough and said the risk remained that the talks could unravel. (Additional reporting by Dasha Afanasieva in London and Florence Tan in Singapore; Editing by David Gregorio and Jim Marshall)