(Reuters) - The euro rose to a seven-week high against the dollar on Thursday, after business activity surveys in France and Germany were not as bad as feared, lifting some of the pessimism surrounding the region's economy. Minutes on Wednesday from the U.S. Federal Reserve's latest meeting, which suggested it was willing to deliver more monetary stimulus "fairly soon", also hit the dollar. The euro rose to $1.25726 and could firm on option-related buying to around $1.2600 in the near term, some traders said. It last stood at $1.2544, with traders citing buying by macro funds and stops triggered in its move above $1.2670. Data on Thursday showed a long-running contraction in French business activity eased in August, while the index tracking Germany's manufacturing sector rose in August, though it contracted for the sixth straight month. Germany's services sector purchasing managers index (PMI), having climbed above 50 in July, retreated to 48.3 in August. It also contracted in June. "The French PMIs were a bit better while the German one was at best mixed," said George Saravelos, currency strategist at Deutsche Bank. "Still, at the margins they are supportive and we expect the euro has a bit more to go towards $1.27. Markets are also starting to put a bit more risk premium on the Fed." The euro has gained more than 4 percent from its two-year low of $1.2042 hit late July, buoyed by expectations the European Central Bank will unveil plans to help lower Spanish and Italian bond yields at its next policy meeting on September 6. This week, a series of high profile meetings may help frame the next phase of policymakers' response to the crisis. German Chancellor Angela Merkel and French President Francois Hollande meet later on Thursday to calibrate their message to Greek Prime Minister Antonis Samaras. Merkel said on Wednesday no decisions would be taken during her talks with Samaras on Friday, adding she would wait for the lenders' report on Greek progress in meeting targets. That report is not expected until at least late September. CHINESE SLOWDOWN The euro's gains pushed the dollar index to its lowest in two months to 81.284 .DXY. The dollar also fell to a seven-week low against the Swiss franc. While some market players expect the Fed's likely easing to come in the form of a third round of bond buying, or quantitative easing, others cautioned it may extend the period it plans to keep exceptionally low rates in place instead. The Fed has pledged to keep low rates through late 2014. "Given mixed economic indicators of late, I doubt the Fed will embark on QE3 in September. If the Fed just extends the period of low rates, the impact on the currencies will be limited," said Makoto Noji, senior analyst at SMBC Nikko Securities. As U.S. economic indicators since the Fed's policy board last met on July 31 - Aug 1 were fairly upbeat, the market is seeking clues on the latest thinking of Fed Chairman Ben Bernanke. He speaks at a conference of central bankers and economists in Jackson Hole, Wyoming, at the end of this month. The Australian dollar trimmed gains after the HSBC Flash China manufacturing PMI fell to a nine-month low, a signal that a slowdown in growth has extended deeper into the third quarter. The Aussie stood at $1.0510, up slightly on the day but off its 10-day peak of $1.0546 hit earlier in the session. The U.S. dollar was subdued against the yen after making its biggest one-day loss in nearly two months on Wednesday after the Fed minutes. The dollar fell to 78.273 yen on Wednesday, its weakest in over a week, and last traded at 78.60 yen.

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