* M3 money supply growth 1.5 pct in June vs 1.0 pct in May
* Private sector loan contraction slows to 1.7 pct y/y
* ECB seen sitting tight as its latest measures take effect
(Adds economist comment, background)
FRANKFURT, July 25 A decline in lending to
households and firms in the euro zone slowed slightly in June
and money supply grew, as the European Central Bank's new
stimulus measures find their way through the system.
In an unprecedented move, the ECB started charging banks in
June to keep their deposits overnight, a step it hopes will
encourage banks to lend. A fresh injection of ultra-long loans
later this year should make lending easier yet.
ECB data showed on Friday that loans to the private sector
fell by 1.7 percent in June from the same month a year earlier
after a contraction of 2.0 percent in May.
Euro zone M3 money supply - a more general measure of cash
in the economy - grew at an annual pace of 1.5 percent, up from
1.0 percent in May.
Howard Archer, economist at IHS Global Insight, said the ECB
may take some heart from the figures.
"Nevertheless, this is still a weak set of data and there is
an awfully long way to go before the ECB can start to relax on
the bank lending and money supply front," he added.
"The ECB is clearly going to sit tight for the next few
months at least as it will clearly take time for the interest
rate cuts and liquidity measures announced in June to fully kick
in and take effect."
The ECB cut rates to record lows in June and unveiled plans
for liquidity injections to breathe life into the euro zone
economy, where inflation is running far below the central bank's
target and there is a dearth of credit to smaller firms.
Further policy easing could be difficult for the ECB's
Governing Council to agree on as resistance to embarking on a
broad-based asset-purchase plan - quantitative easing - is high
among some policymakers.
Sabine Lautenschlaeger, a member of the ECB Executive Board
that forms the nucleus of the Governing Council, said earlier
this month the central bank should only embark on such a
programme in an emergency.
The ECB has, however, been saying for months that political
risks may have the potential to affect economic conditions in
the euro zone negatively. Such risks may now be materialising.
German business sentiment fell to its lowest level in nine
months in July in a sign that firms in Europe's largest economy
are worried about the crises in Ukraine, Iraq and Gaza.
In a drive to enable banks to give out loans more freely in
future, the ECB is putting the euro zone's top lenders through a
thorough review of their balance sheets to weed out soured
loans. This will, however, take time to take full effect.
(Reporting by Eva Taylor and Paul Carrel; Editing by Alison
Williams and John Stonestreet)