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Lending to eurozone private sector drops further


Loans to the private sector in the eurozone fell further in May, the European Central Bank said on Thursday, giving a bleak insight into the economic climate.

Lending dropped 1.1 percent last month from a fall of 0.9 percent in April, the ECB said in its monthly report on monetary developments in the euro area.

In March it had fallen 0.7 percent.

IHS Global Insight economist Howard Archer called it bad news on both the supply and demand fronts.

"It is likely that banks believe the economic situation and outlook in many eurozone countries continues to provide a risky backdrop in which to lend," he said.

"Meanwhile, with eurozone economic activity still generally weak and business confidence limited, demand for credit is likely to be muted."

At the same time growth in the M3 indicator, a key measure of the amount of money in circulation, slowed slightly by 2.9 percent in April, compared with 3.2 percent in March.

The ECB regards the M3 figure as a key guide to inflation pressures and uses it to set interest rates accordingly.

It matched expectations of analysts polled by Dow Jones Newswires.

Archer said the three-month average growth of 2.9 percent had fallen from earlier in the year, indicating that the ECB still had some scope to cut interest rates further.

"Eurozone money supply growth remains well below the ECB's 4.5 percent target rate and it clearly poses little inflationary threat thereby reinforcing belief that the ECB has ample scope to take further stimulative action," he said.