By Carla Mozee and V. Phani Kumar, MarketWatch

LOS ANGELES (MarketWatch) -- The euro fell against the U.S. dollar Thursday, turning lower after the European Central Bank set a deadline for a Cyprus bailout deal and as a purchasing-managers' index pointed to a deepening economic downturn in the euro zone.

The euro (EURUSD) traded at $1.2914 in recent action, down from $1.2933 in North American trade on Wednesday and from its early high of $1.2956.

The shared currency dropped to $1.2870 after the ECB said it would cut off emergency liquidity support for Cyprus banks on Monday if a deal isn't in place to shore up the country's ailing financial sector.

Dutch Finance Minister Jeroen Dijsselbloem said euro-zone finance ministers will hold a conference call Thursday night to discuss the situation in Cyprus. The call will take place at 7 p.m. Central European Time, or 2 p.m. Eastern, and a statement will follow.

Cyprus is trying to raise around 5.8 billion euros ($7.5 billion) in return for a EUR10 billion rescue package from its European partners. Cyprus officials were working on a plan to tap pension funds and other assets and were still in talks with Russian officials about possible aid.

In addition to uncertainty about Cyprus, the euro was pressured by evidence that the euro zone's economic downturn worsened this month. French and German purchasing-managers' index, or PMI readings, dragged the region's composite PMI further into contraction territory. See: Euro-zone PMI signals deeper March downturn.

"The clear message from the latest batch of PMI readings is that the euro-area economy suffered a sixth consecutive quarter of falling GDP" in the first quarter, said James Ashley, senior economist at RBC Capital Markets in London.

So far, however, the euro has managed to hold chart support at $1.2850, said Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York.

"It appears that the currency markets continue to hope for some sort of definitive resolution of Cyprus banking crisis, but with time running out under ECB's self-imposed timeline, the downward pressure on the pair is likely to increase as we head into the weekend and the 1.2850 support line may tested if traders begin to believe that no solution is coming," he said.

In a seesaw session, the ICE dollar index (DXY), a measure of the greenback against six major global currencies including the euro, turned lower, to 82.743 from 82.852 late Wednesday.

Economic data from the U.S. were also released Thursday, with the Philadelphia Federal Reserve saying manufacturing activity in the region picked up sharply in March, while the Conference Board's leading economic index grew 0.5% in February, a third straight month of gains.

Also, the Labor Department reported that applications for unemployment benefits rose slightly last week, but remained near a five-year low. Initial jobless claims rose by 2,000 to a seasonally adjusted 336,000. Economists surveyed by MarketWatch forecast a rise to 340,000 from a revised 334,000 in the prior week.

The WSJ dollar index , a rival gauge of the greenback's performance against a slightly wider basket of currencies, was firmly lower, at 73.50 from its close Wednesday at 73.71.

The U.S. dollar (USDJPY) weakened against the Japanese yen, buying Yen95.10 compared with Wednesday's level of Yen96.03.

In his first news conference, new Bank of Japan Gov. Haruhiko Kuroda was quoted as telling reporters that more efforts were needed to counteract deflation pressures.

Earlier Thursday, Kuroda pledged "all-out efforts" to drive Japan out of an era of deflation, according to an AFP report.

The Australian dollar (AUDUSD), meantime, rose to $1.0437 from $1.0378 on a day of high political drama in the country.

Prime Minister Julia Gillard on Thursday was re-elected leader of the ruling Australian Labor Party. She had run unopposed. She had called a vote earlier in the day, after Arts Minister Simon Crean was sacked for publicly urging Gillard for a change of all leadership positions. Read full story on Gillard's re-election.

Among other major pairs, the British pound (GBPUSD) rose to $1.5170 versus $1.5102 on Wednesday.

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