* Fed extends Twist, leaves easing options open
* Euro drops to session low after German PMI
* Spanish borrowing costs hit new highs at auction
By Nia Williams
LONDON, June 21 (Reuters) - The dollar rose against the euro and growth-linked currencies on Thursday after the U.S. Federal Reserve disappointed investors who had expected it to opt for more aggressive easing - a move that would have boosted appetite for riskier currencies.
The euro came under fresh pressure after data showed Germany's private sector shrank in June for the second month running, with manufacturing activity hitting a three-year low.
This suggested Europe's largest economy may contract in the second quarter as the euro zone debt crisis intensified, and offset data from France which showed a slowdown in business activity there had eased.
Overall, the data made grim reading and kept alive speculation the European Central Bank will cut interest rates, offering investors a fresh excuse to sell the euro.
"After the Fed there was a bit of disappointment for the market but at least they extended Operation Twist," said Lutz Karpowitz, currency strategist at Commerzbank.
"Today we will have choppy, sideways moves. The market is looking for central bank action or any news regarding the European debt crisis."
The euro dropped 0.2 percent to $1.2674, having hit a high of $1.2744 on Wednesday. Bids from sovereign investors and macro funds were cited below $1.2620. Offers were reported above $1.2700 and stop-loss orders above $1.2720, traders said.
The dollar regained lost ground after the Fed stopped short of launching a more aggressive programme of buying bonds outright, or QE3, which some in the market had expected.
Policymakers expanded "Operation Twist", under which the Fed sells short-term securities to buy longer-term ones to keep long-term borrowing costs down, by $267 billion. The programme, which was due to expire this month, will run until the end of the year.
The dollar index, a measure of the greenback's performance against a basket of currencies, rose 0.1 percent to 81.595. The dollar rose to a 1-month high at 79.958 yen, getting some support after U.S. Treasury yields edged up on Wednesday.
Analysts said the dollar's outlook was clouded, with more players likely to position for fresh Fed stimulus after the central bank downgraded its U.S. growth forecast.
SPAIN IN FOCUS
Many analysts said the Fed was probably saving ammunition given the risk the euro zone crisis could deteriorate in coming weeks as borrowing costs in peripheral countries remain high.
Spain's borrowing hit a new euro era high at an auction on Thursday, a few hours before it sheds light on the state of its banks and possibly makes a formal request for funds to bail out the sector.
"What we had from the Fed is that further easing is still likely but the market is a bit uncertain about how that easing will come," said Michael Sneyd, FX strategist at BNP Paribas.
"We think euro/dollar can squeeze higher from here but we prefer being long commodity currencies against the dollar."
Growth-linked currencies came under pressure, digesting the Fed decision and weak Chinese data. The Australian dollar fell 0.2 percent to $1.0170, retreating from a seven-week high of $1.0225 hit on Wednesday.
The Aussie dollar hit an intraday low after a private-sector survey showed China's factory sector contracted for an eighth successive month in June, with export orders at their weakest since early 2009.
Finance access for small firms 'eases' - BBC News
More small and medium-sized businesses (SMEs) in Scotland are successfully applying for finance, according to a Scottish government survey.
The SME Access to Finance report found 87% of firms were able to access all of the money they were seeking - up from 79% in the last survey in 2010.
There was also a fall in the number of outright rejections by banks.
But there was a marginal rise in the proportion of firms who secured none of the money they were seeking.
The Scottish government said the survey provided "some evidence of an easing in supply constraints".
The survey indicated a rise in demand for finance across nearly all sectors, with 9% of all firms seeking new and/or additional lending and a third of all firms looking to renew existing facilities.
Manufacturing and construction were among the sectors with the highest application rejection rate.
The latest survey suggested demand for finance had remained broadly stable since the last survey in 2010, with 45% of firms looking for credit over a three-year period to 2012. That compared to a figure of 43% in the three years to 2010.
Finance Secretary John Swinney said small and medium-sized business were "the lifeblood of the Scottish economy".
He continued: "Collectively they employ over one million people and account for around 54% of total employees in Scotland's private sector.
"Any evidence of increased lending to SMEs is good news for our economy and will be a key element in building a sustained recovery."
Mr Swinney said lending criteria were stricter now than in the past but the latest figures showed that accessing finance was still possible.
"Businesses must present a robust, commercially sound proposition," he said.
"Companies can come to our agencies or Business Gateway for advice and information before they even approach the banks and I would urge them to make use of all of the services available."
Lending callEarlier this year, Mr Swinney urged the UK government to do more to accelerate bank lending for SMEs.
His call followed UK Treasury data indicating Scottish SMEs received less than 5% of lending from a project set up by the UK government and five major banks.
Under Project Merlin, banks committed to making £190bn of new credit available in 2011.
Scottish SMEs took 4.8% of gross lending, but accounted for 6.4% of UK SMEs.
In March, the UK government introduced a £20bn National Loan Guarantee Scheme, aimed at boosting bank lending to SMEs.
Forex Flash: USD/JPY rebounds from downtrend - Commerzbank - NASDAQ
FXstreet.com (Barcelona) - Commerzbank analysts see the USD/JPY finally recovering ground after being held by the three month downtrend channel at 78.33 and 200-day moving average.
"While above the channel support we will assume an upside bias. Overhead lies the 55 day moving average at 79.94 and the 80.61 May high", wrote analyst Karen Jones, pointing to the need of erasing the cloud resistance at 80.30 to stabilize the market.
"Below 78.33 we have 78.13 - the 78.6% retracement which is regarded as the last defense for the 77.65 recent low", Jones added.
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