UPDATE 2-Sluggish loan, M3 growth backs ECB stimulus stance

* Sept M3 money supply growth 1.0 pct vs 1.3 pct forecast

* Loans to private sector up 1.2 pct vs 1.4 forecast

* Data shows ECB stimulus still warranted - analysts

* Euro zone base rate seen unchanged well into 2011

(Adds quotes, details)

FRANKFURT, Oct 27 (Reuters) - Growth rates in money supply
and private sector loans in the euro zone were sluggish in
September, supporting the European Central Bank's careful
approach to winding down measures designed to boost lending
activity.

Underlining the still fragile nature of the single currency
zone's economic recovery, loans to the private sector rose 1.2
percent year-on-year, ECB data showed on Wednesday, missing a
Reuters forecast for 1.4 percent growth.

M3 money supply, a measure of cash readily available to
spend which the European Central Bank sees as a leading
indicator for inflation, rose 1.0 percent on an annual basis,
versus expectations for a 1.3 percent rise.

Wednesday's figures are watched chiefly for signs that
lending to companies and consumers is recovering from the
banking sector shocks that began in 2008 and that the ECB's huge
quantities of emergency liquidity for the sector are finally
being passed on.

"The fact that broad money and overall credit growth have
moved back into positive territory is encouraging," said Martin
van Vliet from ING.

"But the still sluggish growth rates highlight the
underlying fragility of the economic recovery.

"The ECB seems well advised to take a cautious approach
towards unwinding its monetary stimulus measures."

A Reuters poll on Tuesday forecast the European Central Bank
would allot 33 billion euros ($45.9 billion) at its first
indexed three-month refinancing operation on Wednesday, a key
test of efforts to wean banks slowly off support.

The ECB said loans to households rose 2.8 percent higher
from a year earlier, the sixth rise in a row and only just down
from August, when it grew at fastest rate in more than a year.

Loans to companies -- the missing link in the recovery so
far -- were still declining in annual terms, but the 0.6 percent
fall was less than the -1.1 percent figure for August.

"There is still significant concern over the general ability
and willingness of banks to provide the necessary credit to
support improving economic activity," said Howard Archer at
Global Insight.

"Consequently, while there has recently been some talk about
the ECB's exit plans, we suspect that the bank is likely to
continue to retain some emergency liquidity measures for some
time to come."

The subdued M3 data suggested the ECB would likely keep
interest rates down at record lows of 1.0 percent "deep into
2011", he said.

(Reporting by John Stonestreet, London Treasury Desk; Editing
by Patrick Graham, +44 207 542 4441)