Eurozone bank lending to the private sector shrank in September for the first time on record, the European Central Bank said on Tuesday, a stark warning that any recovery is fraught with uncertainty.

Lending contracted by 0.3 percent, an ECB spokesman said, after growing by 0.1 percent in August.

It was the first time the figure was negative since the ECB's records began in January 1992.

"There are still few signs that the ECBs unlimited provision of liquidity to banks is prompting any pick up in eurozone broad money and lending," Capital Economics economist Ben May commented.

Growth in lending has slowed since December 2007, and initially was the result of weaker demand as the economy cooled off and went into recession.

But with the 16-nation eurozone's economy set to expand again sometime in the second half of this year, economists warn a credit squeeze could come from the supply side as banks tighten conditions for granting loans.

The ECB is to release its quarterly survey of bank lending on Wednesday and "the credit cycle remains the biggest question mark on the timing and the extent of the recovery," UniCredit economists Loredana Federico and Davide Stroppa wrote.

Growth of the ECB's wider M3 money supply indicator, which measures cash, deposits and various other financial items, fell meanwhile to 1.8 percent in September from a revised 2.6 percent in August, the ECB spokesman said, also a record low.

Lending and money supply data illustrate consumer demand and overall activity in an economy.

Falling figures point to lower demand, which normally means inflation will ease and allow the ECB to cut interest rates. However, the rates are already at a record low of 1.00 percent and are not expected to be cut further.

In the meantime, recent data has shown that business activity in the 16-nation eurozone picked up in October at its fastest rate since December 2007, though a sustained rebound could also be curbed by rising unemployment.

May noted that there was "little sign that conditions in the banking sector are becoming more normal, suggesting that it remains too early for the ECB to think about removing its generous liquidity provisions, let alone raising interest rates."

The ECB has provided unlimited amounts of cash to commercial banks in a bid to spur activity in interbank markets and increase lending to the broader economy.

But the banks have held on to much of the money because they are wary of borrowers' business prospects and because they need to bolster their own weakened balance sheets.

"While stresses in the financial markets may be easing, banks remain reluctant to lend to the wider economy," May said.

The UniCredit economists did see some encouraging signs in the ECB data, especially in the household sector where growth in lending for home purchases appeared poised for a pick-up.

Commerzbank economist Michael Schubert, however, noted that even if a recovery did begin in the second half of this year, "a turning point in (overall) loan growth may not be reached before early 2010."