Difference in euro zone loan costs below 2013 levels in Jan

FRANKFURT, March 5 Wed Mar 5, 2014 7:12am EST

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FRANKFURT, March 5 (Reuters) - Differences in corporate loan costs across the euro zone inched up in January but remained smaller than last year, adding to signs the bloc's economy is mending and European Central Bank policies are gaining traction.

Data released by the ECB on Wednesday, a day ahead of its monthly policy meeting, showed the central bank's measure of country-by-country variation in large corporate loan interest rates rose slightly in January from the December reading.

The cost differential was smaller than it had been for most of 2013, however.

A narrowing of the differences in funding costs across the euro zone is an indication for the ECB that the interest rates it sets are beginning to filter through more evenly, making its main tool to steer price stability more effective.

The ECB is expected to keep its main refinancing rate at a record low of 0.25 percent when it meets on Thursday, but the Governing Council could take action to loosen lending conditions as inflation remains stuck below the ECB's target.

Funding costs for euro zone companies began to diverge as the financial crisis laid bare country-specific risks, prompting investors to demand premiums in some member states. Despite the recent improvement, the differences remain stark.

The data showed that companies in Portugal had to pay 5.45 percent interest on new loans on average in January compared with 5.24 percent in December. In Finland, companies paid just 2.07 percent. (Reporting by Eva Taylor; Editing by Catherine Evans)

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