* Data shows c.bank funds not getting to firms, consumers
* M3 annual growth rate in Dec 3.3 pct vs 3.8 pct in Nov
* Loans to firms -22 bln euros m/m, to households -3 bln
FRANKFURT, Jan 28 (Reuters) - Loans to companies and households in the euro zone contracted for the eighth month running in December, showing low official borrowing costs are having little success in reviving investment and spending.
The European Central Bank has cut interest rates to a record low and pumped more than 1 trillion euros into the banking sector, which some banks are beginning to repay early in a sign that funding conditions are improving. But lending remains weak.
Loans to the private sector fell 0.7 percent from the same month a year ago, ECB data showed, in line with the mid-range forecast in a Reuters poll of economists.
"The euro zone may be heading for a recovery, but not a credit-fuelled one," said Berenberg economist Christian Schulz. "Returning confidence in the banking sector may be concealed by the effects of the ongoing recession and deleveraging."
The monthly flow of loans to non-financial firms fell 22 billion euros in December after falling by 7 billion euros in November. The monthly flow of loans to households showed a drop of 3 billion euros after a rise of 6 billion euros in the previous month.
The cheap funds the ECB is pumping through the monetary system are not reaching households and businesses evenly across the currency bloc as some countries struggle to get their stricken economies back on track, though progress has been made.
On a country-by-country basis, the data showed a 22 billion euro drop in private-sector lending in Spain, the largest monthly fall since July. In Portugal, private-sector lending fell by 2.6 billion, the biggest drop in a year.
Italy, however, posted a healthy rise in private-sector loans of 12.6 billion euros to 1.757 trillion euros.
The central bank has taken some of the heat out of the euro zone crisis by announcing a new, as yet unused, bond-purchase programme, but the bloc's economy remains weak and is expected to have shrunk in the final months of 2012.
ECB President Mario Draghi noted in early January some economic indicators had stabilised at low levels and financial markets' confidence had improved, which along with the ECB's accommodative policy should lead to a recovery later this year.
Draghi even spoke of "positive contagion" in financial markets, and Monday's data pointed in that direction, showing consumers and firms' deposits in banks in Greece, Italy and to some extent Spain rising in December.
The more upbeat assessment has doused hopes of any further cuts in interest rates but most economists think the economy will contract overall this year.
"The much more positive sentiment about the euro zone future that has prevailed in financial markets so far this year will probably take some time to materialise in greater credit availability and economic growth," Oxford Economics' Marie Diron said.
Euro zone M3 money supply - a more general measure of cash in the economy - slowed to annual growth of 3.3 percent in December from 3.8 percent in November, just below the consensus of 3.9 percent from analysts polled by Reuters.