UPDATE 1-Japan June bank loans fastest rise in two years

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TOKYO, July 8 (Reuters) - Japanese bank lending rose 1.8
percent in June from a year earlier, logging the fastest growth
in two years, partly as rising commodity costs boosted demand
for short-term working capital at big firms, the Bank of Japan
said on Tuesday.

But analysts remain cautious about the outlook, saying that
lending will weaken in coming months due to sluggish fund demand
from small firms feeling the pinch from rising costs and due to
slack demand for housing loans by consumers.

Growth in bank lending has been slow as Japanese firms have
been reluctant to take on debt, remembering the pain of paying
back huge debts they incurred during the nation's asset bubble
era.

In June, sectors such as petroleum, automobile and steel
helped push up the balance of outstanding loans to 455.3076
trillion yen ($4,250 billion), a BOJ official said. [JPBNK=ECI]

Excluding special factors such as loan write-offs, the loan
balance rose 2.4 percent from the same month a year earlier, the
fastest increase since February last year.

Separate BOJ data showed Japan's M3 money supply rose 0.9
percent in June from a year earlier, marking the fastest growth
since January 2005, helped by an increase in quasi-money
including time deposits, which rose at the fastest pace in nine
years.

A rise in interest rates has prompted a shift of funds into
quasi-money, while jittery financial markets helped push growth
in broadest liquidity to its slowest pace since October 2003.

Investment trusts, a component of broadest liquidity, rose
7.8 percent from a year earlier, the slowest growth in three
years.

The BOJ revamped the money supply data last month to reflect
recent changes such as the start of Japan Post's privatisation,
a rise in issuance of bank bonds and an increase in privately
subscribed investment trusts.

The new M3 money supply data includes deposits at all
deposit-savings institutions, including Japan Post and small
agricultural institutions.
(Reporting by Tetsushi Kajimoto; Editing by Brent Kininmont)