WASHINGTON -- Commercial banks reported stepped-up demand for credit from households and businesses in August, according to the Federal Reserve's latest survey of senior loan officers.

The survey of 60 large and small banks released Friday also says that banks continued to ease lending terms and standards for a broad range of customers, including individuals.

The survey appears to mark the Fed's most upbeat assessment of bank lending conditions and demand for credit in a long time, although banks have previously reported some improvement in credit conditions. The previous senior loan officer survey was taken May 20.

"A substantial fraction of domestic respondents reported stronger demand for business loans by firms of all sizes in the August survey," the Fed said.

The pickup was especially noticeable among small- and middle-market firms, and wiped out a decline in demand among large firms in May.

The causes of the increased demand for credit were roughly split between inventory investment and plant and equipment spending, the Fed said. Economists say business outlays on computers and other gear have been strong lately, helping to sustain the lackluster economy.

Bank respondents reported "a fairly significant net easing of standards and terms for commercial and industrial loans in the August survey," the Fed report says. About 20% of all respondents said they had eased standards for large and medium-size firms, and a few said standards for small firms were less rigorous.

In many cases, banks said they had lowered borrowing costs by narrowing the spread between the cost of funds and the price of loans, especially for small and medium-size businesses.

The Fed also said banks reported they were more willing to lend to households. A third of the banks said they were now more willing "to make general purpose loans to individuals," including loans under home equity lines of credit.

"Moreover, there was some net easing of standards for residential mortgages in August, more than reversing the small tightening reported in May," the Fed said.

About 20% of the banks responding to the survey said that since May they have seen increased demand by households for consumer installment loans and home equity lines of credit. More than 40% reported stronger demand for residential mortgages to purchase homes, apparently reflecting the continued drop in interest rates.

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