January 31, 2012, 2:37 AM EST

(Updates with quote from economist in fifth paragraph.)

Jan. 30 (Bloomberg) — Demand for business loans increased in the fourth quarter as economic growth accelerated, according to a Federal Reserve survey of senior loan officers at banks.

Seventeen of 56 banks reported stronger demand among companies with $50 million in annual sales or more, according to the survey released today in Washington, while six reported weaker demand. Demand among small businesses for loans increased by the most in any quarter since 2005.

Economic growth accelerated last quarter to a 2.8 percent annual rate, the fastest pace since the second quarter of 2010. The expansion still isn’t strong enough to push down an unemployment rate that has been at 8.5 percent or higher for 34 consecutive months, prompting the Fed last week to say its benchmark interest rate will be kept near zero until at least the end of 2014.

While business demand for borrowing increased, banks reported “little change in standards on commercial and industrial loans but a continued easing of pricing terms,” the survey said. The pickup in business lending was a reversal of the previous survey, released in November, in which more banks reported a drop than an increase in demand.

Banks and businesses may be “moving away from the ‘buckle down’ approach,” said Drew Matus, senior economist at UBS Securities LLC in Stamford, Connecticut.

“If a firm wants to expand they typically need to borrow money to do it,” Matus said. “So at a minimum this suggests we should still be looking for decent job growth over the next three to six months.”

More Jobs

The economy will add 145,000 jobs in January, according to the median estimate of a Bloomberg News survey of economists ahead of a Feb. 3 Labor Department report, down from a gain of 200,000 the previous month. The unemployment rate will probably remain unchanged at 8.5 percent, according to the survey.

The survey pointed to “important factors” driving the increase in business lending such as “funding needs related to inventories, accounts receivable, and mergers and acquisitions.” Most banks that reported weaker demand pointed to reduced funding needs for capital investment, the Fed said.

“Recent economic data suggests that growth improved in the fourth quarter of 2011, which we believe reflects the positive impact of the Fed’s easing that was initiated in late 2010,” Mike DeWalt, director of investor relations at Caterpillar Inc., said on a conference call with analysts last week. “It’s our view that the full impact of those actions hasn’t materialized yet and that it will contribute to continued growth in 2012.”

Identify Respondents

The survey of loan officers at 56 domestic banks and 23 U.S. branches and agencies of foreign banks was conducted from Dec. 21 to Jan. 10, the Fed said. The report doesn’t identify respondents.

“Lending standards and demand for loans to purchase residential real estate were reportedly little changed,” the report said.

Mortgage rates near record lows have failed to revive the housing market after five years of price declines. The average 30-year fixed rate mortgage was 3.98 percent as of Jan. 26, according to a Freddie Mac index. The index reached the lowest level in 40 years on Jan. 19, when rates fell to 3.88 percent.

The yield on benchmark 10-year notes fell to 1.83 percent as of 2:49 p.m. The yield on the five-year Treasury reached a record low today of 0.72 percent.

Bank of America Corp. and Citigroup Inc. are among lenders that may find it more difficult to boost profits and capital after the central bank extended its pledge to keep rates low from a previous date of at least the middle of 2013.

Bank Profitability

The average net interest margin at the four largest U.S. banks — JPMorgan Chase & Co., Bank of America, Citigroup and Wells Fargo & Co. — dropped to 2.99 percent in the fourth quarter from 3.17 percent a year earlier. Net interest margin is a gauge of bank profitability that measures the difference between the cost of funds and what they earn on assets.

The margin at U.S. banks with more than $15 billion in assets fell to 3.44 percent in the third quarter of 2011 from 3.85 percent in the first quarter of 2010, according to Fed data.

In a special set of questions on lending to banks in Europe, 15 of 26 banks reported tightening their standards on loans to Europe, with 10 reporting “somewhat” stricter and five “considerably” stricter conditions.

About half of banks that compete for customers with banks in Europe said they had experienced an increase in business over the past six months as “a result of decreased competition from European banks.”

Easing Standards

More banks reported easing standards and increased demand for credit-card and auto loans.

The Thomson Reuters/University of Michigan index of consumer sentiment climbed for the fifth straight month to the highest level since February 2011. The Bloomberg Consumer Comfort Index rose to minus 46.4 in the period ended Jan. 22 after minus 47.4 the prior week.

Consumer spending stalled in December as Americans increased their savings. Purchases were little changed last month, even as incomes climbed by 0.5 percent, the most since March. The personal savings rate climbed to 4 percent from 3.5 percent in November.

Asked about the outlook for 2012, 33 of 55 firms expect loan quality to medium- and large-sized firms to improve, while 29 of 53 banks expect better quality from small businesses. For commercial real estate, 32 of 55 banks expect the quality of lending to improve in the year ahead.

–Editors: James Tyson, Christopher Wellisz

To contact the reporter on this story: Joshua Zumbrun in Washington at jzumbrun@bloomberg.net;