* 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 (Reuters) - The euro dropped across the board on Thursday on further evidence of a deepening euro zone slowdown and worries about a banking collapse in Cyprus. Even before the crisis in Cyprus erupted last weekend, the latest data showed the euro zone economy was in the midst of a steep downturn and few signs of recovery were likely to keep demand for the euro sluggish. "The uncertain situation in Cyprus and the dour euro zone economic data are the key issues here and these are two reasons not to be buying the euro at this time," said Greg Moore, currency strategist at TD Securities in Toronto. The euro dropped to a session low of $1.2879, near the four-month trough of $1.2843 hit on Tuesday, and was last at $1.2913, 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 85.16 pence, down 0.6 percent, while it last traded at 123.03 yen, down 0.9 percent. The single currency also dropped 0.8 percent against the Australian dollar at A1.2361, and fell 0.4 percent to C$1.3218 versus the Canadian currency. Business surveys on Thursday showed the euro zone's economic contraction increased 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. Analysts said near-term support lay around the 200-day moving average for the euro against the dollar around $1.2877, 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 after its parliament rejected a proposal by European authorities to impose a tax on bank deposits. Cyprus has 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. "Clearly, the risk of an exit by Cyprus from the euro zone has increased," said Marc Chandler, global head of FX strategy at Brown Brothers Harriman in New York. "We think Cypriots' lives will be made significantly worse on an exit." Chandler thinks a Cypriot departure would have minimal impact on the euro zone, but this should "sufficiently scare other weak members of the euro area and convince them it is better to be in, with all the yielding of sovereignty that it entails." 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. Still, the yen recovered and was up on the day, with the dollar down 0.8 percent at 95.25 yen. Asian central banks were said to be looking to buy the dollar on dips. Kuroda also said 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 Paribas currency strategist Vassili 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 has 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.