December 10, 2012 / 11:34 AM / 5 years ago

UPDATE 1-Italian banks' loans continue to fall in October

(Adds data on Italian bonds holding, details)

MILAN, Dec 10 (Reuters) - Private sector deposits held at Italian banks rose again in October but loans to businesses continued to decline, Bank of Italy data showed on Monday.

The central bank said private sector deposits rose 4.7 percent in October from a year earlier, after an increase of 5.7 percent in September.

Lenders however did not pour that money back into the economy, and loans to non-financial firms fell 2.9 percent -- the sixth consecutive monthly decline.

The scarcity of loans from the banking sector is putting even more pressure on Italy’s manufacturing sector already struggling to recover from a deep recession.

In turn, banks’ willingness to lend is constrained by a rising amount of bad loans which have become a major concern for investors.

In October, bad loans at Italian banks rose to 119.8 billion euros ($154.9 billion) in October from 117.6 billion in September.

Data showed that Italy-based lenders boosted their holdings in the country’s government bonds to 340 billion euros in October from 327.4 billion euros a month before, with an increase of more than 100 billion euros from Jan. 2012.

$1 = 0.7735 euros Reporting by Francesca Landini. Editing by Jeremy Gaunt.

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