* Euro zone inflation 0.5 pct y/y in June vs 0.5 pct in May
* Private sector loans contract 2.0 pct in May
* Data strengthens case for ECB's June action package
* ECB seen to keep door open for more stimulus measures
(Adds loan data, comments from economist)
By Martin Santa and Eva Taylor
BRUSSELS/ FRANKFURT, June 30 Euro zone inflation
remained stuck at levels last seen during the 2009 recession and
lending to companies and households contracted again, data
showed on Monday, further highlighting the bloc's feeble
The reports - for June and May, respectively - underlined
the reason for the European Central Bank's unprecedented policy
steps earlier in June when it cut interest rates to record lows
and promised to hand out more long-term loans to encourage banks
to lend more freely.
It will take a while for the measures to take effect and
they would not have influenced Monday's releases. Details have
not yet been announced for the long-term loans and most
economists do not expect any fresh policy steps when the ECB
meets on Thursday.
But there is no sign that the pressure on the ECB is easing.
"The ECB has just announced new measures to signal its
readiness to bring inflation back to target and boost lending,
but it will surely keep the door wide open to more measures at
this week's meeting," said Berenberg Bank's Christian Schulz.
Annual euro zone inflation stayed at 0.5 percent in June
compared with last month, the European Union's statistics office
Eurostat said on Monday. Core annual inflation - excluding
energy, food, alcohol and tobacco - inched up to 0.8 percent.
This was slightly unexpected after annual inflation in
Germany rebounded to 1.0 percent in June, which Berenberg's
Schulz said suggested "a widening of the range of inflation
rates between the core and the periphery".
Overall, euro zone inflation remains far below the ECB's
medium-term target of just below 2 percent and has been stuck in
what ECB President Mario Draghi has called the "danger zone" of
below 1 percent for nine months in a row.
The ECB is worried that the euro zone's growth prospects
will suffer if inflation stays too low for too long.
One of the ECB's main concerns is that banks in euro zone
periphery countries are not lending sufficiently to companies
and households and at higher rates than in the core countries.
This means the ECB's record low interest rates are not
feeding evenly through to the real economy across the euro zone.
In May, Spanish banks lent 10.345 billion euros less to
companies and households than in the month before, ECB data
showed. Lending by Italian banks declined by 7.843 billion euros
and by 567 million euros in Portugal.
German, Finnish and Dutch banks increased lending in May.
The cost of borrowing also differs. While companies have to
pay on average 3.65 percent for loans in Spain or even 5.39
percent in Portugal, German or Dutch firms pay around 2.5
percent, ECB data from April showed.
The ECB now plans to give euro zone banks the opportunity to
borrow four-year funds from the ECB at possibly 0.25 percent for
the four-year term, linking the offer to the size of their loan
books, which it hopes will be an incentive to lend more.
The ECB may reveal details for these targeted long-term
refinancing operations on Thursday.
It also aims to revive the market for securitised loans in
Europe, which collapsed after the financial crisis and never
really recovered since. The ECB said in June it had intensified
preparations for possible purchases of asset-backed securities.
(editing by John O'Donnell/Jeremy Gaunt)