WRAPUP 2-ECB warns of imported inflation, euro jumps

* Bini Smaghi, Gonzalez-Paramo warn on imported inflation

* Bank lending survey shows pick-up in credit appetite

* Analysts say ECB unlikely to bring forward rate hikes at present (Adds Gonzalez-Paramo, German inflation data)

By Marc Jones and James MacKenzie

FRANKFURT/BOLOGNA, Jan 27 (Reuters) - Two top European Central Bank policymakers warned of a rising tide of imported inflation on Thursday, pushing up the euro and Bund yields on the view that the ECB could start taking corrective action.

Some ECB policymakers have sounded increasingly aggressive on inflation over the last month after euro zone data showed it topped the ECB's preferred level of just below 2 percent for the first time in two years in December, hitting 2.2 percent.

Lorenzo Bini Smaghi, one of the six ECB executive board members, warned that sharper rises in prices of commodities and emerging economy-made goods could push up euro zone inflation unless domestic prices were controlled.

"A permanent and repeated increase in the prices of imported products will tend to impact on inflation in the advanced countries, including the euro area," he said in a speech in Bologna, adding that this trend could not be ignored.

To avoid second-round effects, such as higher wages, prices in advanced economies such as the euro area would have to rise by no more than 1 percent a year.

"Otherwise, monetary policy has to become more restrictive than it should be, which leads to slower growth," Bini Smaghi said.

The euro hit fresh two-month highs against the dollar and yen and two-year Bund yields hit their highest since October 2009 after the comments. [ID:nN27178256] [GVD/EUR] EUR=

Analysts have raised their forecasts for European bond yields due to inflation pressures in Europe, a Reuters poll showed on Thursday. They now expect the yield on 10-year German government bonds DE10YT=TWEB to stand at 3.50 percent in 12 months time compared with 3.10 percent in a November poll. The yield is now around 3.19 percent. [ID:nLDE70P2A8]

Financial markets have also brought forward their forecasts for when they expect the ECB to start hiking rates from the current 1 percent record low following the change in the ECB's tone, with economists polled by Reuters seeing the bank taking action in the last quarter of this year rather than early next year. [ID:nSLAQCE7NM]

Fellow ECB board member Jose Manuel Gonzalez-Paramo mirrored Bini Smaghi's warning when speaking to reporters in Madrid later on Thursday. [ID:nFAE005870]

"Imported inflation is a very important part of day-to-day inflation, and so we must be very attentive to the evolution of imported inflation," he said, though he added that expectations were currently under control.

ECB President Jean-Claude Trichet said at the weekend that the central bank was paying close attention to rising oil and commodity prices because of the possible knock-on price effects. [ID:nWEA3142]

At the World Economic Forum in Davos, Switzerland, on Thursday, Trichet said the ECB had delivered price stability and would continue to do so in the next 10 years. [ID:nLDE70Q1DZ]

CHALLENGES

Inflation picked up in Germany in January, other figures on Thursday showed, in an early sign that consumer prices in the broader euro zone may be rising fast enough to raise concerns at the ECB. [ID:nLDE70Q1LD]

Trichet and his colleagues face an increasingly complex policy dilemma as they weigh fast rising prices in euro zone sweetspots like Germany, against recession and banking sector fears in debt-strained members such as Greece, Ireland and Portugal.

Bini Smaghi said the euro zone and the ECB faced a number of major challenges in the period ahead.

ECB lending support held problems whichever way you looked at it, he said. Keeping it in place for too long could create dependency and prolong problems in the region's banking sector, while removing it too quickly was likely to lead to problems for the troubled parts of the banking system.

"An abrupt withdrawal of the liquidity support measures could cause excessive or too rapid adjustments by financial institutions," Bini Smaghi said.

"Sound financial institutions might have to sell significant parts of their assets in a relatively short time. This, in turn, could lead to an excessive depression of prices of financial assets (fire sales)."

The ECB's job may not be made any easier by the sharp rise in inflation expectations, which jumped above their long-term average in January, according to a European Commission monthly survey, and hit the highest level since August 2008.

Selling-price expectations among manufacturers also rose to their highest in December since before the financial crisis intensified in August 2008. [ID:LDE70Q1E6]

(For full Bini Smaghi speech, click on: here)

LOAN APPETITE

Separately, the ECB's latest bank lending survey on Thursday showed that banks expect demand for loans to continue to pick up in the coming months, a sign that the recent rebound in the euro zone economy is beginning to fuel a renewed hunger for credit.

The data was not all good news, however. Banks still expect to impose slightly stricter lending rules on firms, consumers and house buyers in the first quarter of the year overall, despite keeping them steady in Q4.

On top of that, only a net 1 percent of banks expect higher demand for mortgage loans, an area of lending seen by some economists as a leading indicator of overall trends.

"Euro area banks expect a very slight further tightening, in net terms, of credit standards for all categories of loans in the first quarter of 2011," the ECB survey said.

Analysts said that although the data supported signs that the euro zone economy will continue to pick up, it would not spur early action from the ECB.

"This is unlikely to be enough for the ECB to seriously start considering a rate hike soon. The ECB tightening cycle should begin only towards year-end," said UniCredit chief euro zone economist Marco Valli.

(For a copy of the bank lending survey, please see the ECB Web site:

here) (Editing by Hugh Lawson)