FRANKFURT (AFP) - Eurozone private sector lending has nearly stalled, the European Central Bank warned on Friday, posing a threat to what is likely to be a weak recovery from the 16-nation blocs first recession. Growth in loans to the private sector dropped to 0.1 percent in August from a previous record low of 0.7 percent in July, an ECB spokesman said. Capital Economics European economist Ben May said there are still few signs that the ECBs provision of unlimited liquidity to banks is boosting broad money and credit growth. The central bank loaned a record 442.24 billion euros (650 billion dollars) at 1.0 percent in 1-year funds to commercial banks in June and is set to make another unlimited 1-year loan at the same rate next week. Private sector lending, however, could begin to contract in September despite the cash flood, May said. Eurozone banks have been criticised by politicians and business leaders for failing to pass on cheap central bank funds to the wider economy and the ECB has also pressed the banks to do their part to support a recovery. Commerzbank economist Michael Schubert noted that the decrease in lending growth may be partly due to the substitution of securities issuance for bank loans as big companies seek to raise funds directly on the money markets. May nonetheless said that given eurozone firms heavy reliance on bank lending, this is unlikely to fully explain the story. With the recessions impact set to show up increasingly in balance sheets, commercial banks will probably have to apply still stricter lending criteria, Schubert noted. Battered banks are also curbing lending because they must get their their own books in order. Growth of the ECBs wider M3 money supply indicator, which measures cash, deposits and various other financial items, meanwhile fell to 2.5 percent in August from 3.0 percent in July, the bank spokesman said. Lending and money supply data reflect consumer demand and overall activity in an economy. A falling figure points to lower demand, which normally means inflation will ease and allow the ECB to cut interest rates. Interest rates, however, have been slashed to a record low of 1.0 percent to cope with the global financial crisis and are not expected to be cut further. For May of Capital Economics, the latest data underpinned his groups view that the eurozone recovery looks set to be weak by historical standards. Private sector business activity in the 16-nation eurozone picked up in September but analysts warn higher unemployment could undermine already waning momentum, with consumer spending likely to be dampened as the key Christmas retail period approached. That was not immediately apparent however as the latest surveys of consumer sentiment in eurozone heavyweights Germany and France reported gains on Friday. The German GfK polling institute nonetheless also underscored a threat posed by a possible jump in jobless figures.