Frankfurt, Feb. 27 (Bloomberg) -- Money supply growth in the dozen nations using the euro accelerated in January. Analysts say the gain won't keep the European Central Bank from lowering borrowing costs. M3 grew an annual 7.4 percent after growth of 6.8 percent in December, the ECB said. Economists had expected the bank's main gauge of future inflation to be unchanged. ``M3 is no reason not to lower rates,'' said Rainer Guntermann, an economist at Dresdner Kleinwort Wasserstein in Frankfurt. ``The ECB has said it's not worried'' about strong M3 growth ``as long as demand remains weak.''
Germany's economy stagnated in the fourth quarter and Spanish growth was the slowest in a year. ECB President Wim Duisenberg on Saturday abandoned his forecast for a recovery this year and said slower-than-expected growth should help keep prices in check, a sign the bank may soon pare interest rates. M3 growth has exceeded the ECB's 4.5 percent reference value more often than not, as falling stock markets, and more recently the threat of war in Iraq, prompted investors to park their money in assets that are included in M3, such as money market funds. Europe's Dow Jones Stoxx 50 Index fell for a fifth day in six yesterday, closing 1.1 percent lower at 2113.70. It is down 41 percent from a year ago. U.K. Prime Minister Tony Blair on Wednesday said he expects support at the United Nations for a resolution on Iraq that may lead to war, after the chief UN weapons inspector said it's not clear Iraq wants to cooperate on disarmament.
`No Lasting Danger'
Strong money supply growth should not lead to ``lasting danger'' for price stability, ECB council member Klaus Liebscher said in an interview earlier this month. ``We are still convinced it's possible that inflation will fall under 2 percent,'' the ECB's limit, he said. Inflation in the dozen euro countries fell to a four-month low of 2.1 percent in January from 2.3 percent in December. In Germany, Europe's largest economy, the inflation rate rose to 1.3 percent in February from 1.1 percent in January, boosted by higher oil costs, a report yesterday showed. The ECB lowered interest rates by half a percentage point to 2.75 percent on Dec. 5, the first reduction in more than a year. The Bank of England on Feb. 6 cut its benchmark rate to the lowest level since 1955. U.S. rates are at the lowest level in 41 years.
Futures
Investors expect the ECB to pare credit costs in the euro region as early as next week, interest rate futures trading shows. The rate on a three-month euro deposit maturing in March was 2.44 percent at 8:47 a.m. in Frankfurt, compared with a money market rate of 2.55 percent. In the period November through January, M3 grew an annual 7.1 percent, up from a rate of 6.9 percent, the ECB also said. Credit to households and companies expanded 4.8 percent in January, more than the 4.7 percent rate in the previous month. Long-term financial liabilities -- investment in longer-term securities or savings accounts that take money out of M3 -- grew an annual 4.6 percent, after expanding 4.3 percent in the previous month. M3 measures overnight deposits, deposits with agreed maturity of up to two years, deposits redeemable at notice of up to three months, repurchase agreements, debt securities with maturity of no more than two years and money-market funds. //www.quote.bloomberg.com