UPDATE 3-S.Korea household loans rise for 6th month

* S.Korea July household loans up for 6th month

* L-money supply growth in June picks up, first in 5 months

* Bank of Korea expected to show caution over liquidity (Adds finance minister comment in 5th para)

By Seo Eun-kyung

SEOUL, Aug 10 (Reuters) - South Korea's household loans rose in July for a sixth consecutive month and liquidity supply growth in June picked up for the first time since January, adding to worries about ample liquidity and possible asset price bubbles.

The increases will likely fuel caution among policymakers, although the central bank appears certain to keep rates unchanged at a record-low 2.00 percent on Tuesday to bolster economic recovery efforts.

September treasury bond futures KTBc1 extended losses after the data release but gradually regained ground as more debt investors agreed the central bank would not want to disturb money markets with a hasty exit plan and would rather seek other policy means to rein in housing prices. [ID:nSEO234581]

"The governor will likely maintain a balanced and cautious stance as he is well aware of the risk of raising rates to stem asset price bubbles before a solid economic recovery," said Yoon Yeo-sam, a fixed-income analyst at Daewoo Securities.

Echoing that view, Finance Minister Yoon Jeung-hyun was quoted by local media on Monday as saying the country did not need additional measures to stem the rise in property prices. [ID:nSEO256000]

Central bank data earlier showed that bank lending to households rose by 2.6 trillion won ($2.12 billion) in July from the prior month to 402.2 trillion won, the sixth straight monthly gain, although the level of growth slowed from 4 trillion won in June.

Household lending figures will likely be tempered in August, reflecting the impact of tighter lending rules implemented in early July, a finance ministry official said.

"The growth of home-backed loans is expected to ease in August from July as the regulatory policy produces more effect," told Reuters.

South Korea's central bank and financial regulator have started regular inspections of liquidity conditions at major local banks, a central bank official said on Monday.

Though the official said the checks were routine, they came amid market speculation that financial authorities are concerned about asset price bubbles -- particularly in the property market -- as a result of months of easy monetary policy to counter the economic slowdown.

The Bank of Korea and the Financial Supervisory Service (FSS) will jointly check overall liquidity conditions including mortgage lending at seven major local banks including top lender Kookmin Bank.

Record-low interest rates have sparked strong demand for mortgage-backed loans, pushing up housing prices in recent months, prompting authorities to take policy action to control bank loans.

South Korea's financial regulator urged banks a month ago to cut the loan ceiling to 50 percent of the market price of homes worth 600 million won or more, from 60 percent previously, as housing prices rose for a third straight month in June. [ID:nSEO338725]

The International Monetary Fund also advised in a report released after its annual policy review that the country should deal with the rising housing prices with regulatory measures. [ID:nSEO320090]

The central bank data also showed that lending to small and medium-sized enterprises (SMEs) increased by 0.5 trillion won in July to 428.0 trillion won, after rising 0.9 trillion won in June.

Separate central bank data showed on Monday that the nation's broadest measure of money supply growth in June regained momentum for the first time in five months to hit a three-month high.

The L-money supply rose a provisional 9.9 percent in June from a year earlier, up from a revised 9.5 percent rise both in May and April, the lowest since August 2006, the Bank of Korea said.

L money is the broadest measure of money supply in the local financial system and includes cash, all types of deposits at financial institutions and all money market instruments issued.

The annual growth of M1 rose to 18.5 percent in June from 17.0 percent in May while M2 growth eased to 9.6 percent from 9.9 percent, the data showed.

M1 comprises currency and checkable deposits and M2 adds savings deposits to M1. ($1=1224.0 Won) (Additional reporting by Cheon Jong-woo; Editing by Jonathan Hopfner & Kim Coghill)