Money supply growth in the euro zone accelerated in November, supporting expectations among analysts of an early interest rate rise by the European Central Bank (ECB) as it conformed with increased inflationary potential.

M3 money supply raced ahead to a 12-month rate of 6.2 per cent in November, matching market forecasts and coming in far above the ECB's reference value of 4.5 per cent, bank data showed. Economists said the rise from a downward revised 5.8 per cent in October was partly explained by banks stockpiling funds in preparation for possible millennium changeover problems.

But the data, combined with evidence of gradually increasing inflation and strengthening economic growth in the euro zone, showed the ECB was likely to increase its key interest rate again, possibly as soon as the first quarter of next year, economists said.

"The November figure is partly distorted by Y2K related factors, but M3 growth does not contradict the development in the other pillar (inflation and other indicators) of the ECB strategy," said Mr Michael Schubert, an economist at Commerzbank. "This means that, in the medium term, the current expansionary monetary policy is not tenable anymore."

The ECB will have to move from the current stance to a neutral one." he added.

The closely watched, less volatile three-month average rate for the September-November quarter grew by 6 per cent, slightly higher than the previous period's 5.9 per cent but slightly below analysts' expectations of a 6.1 per cent rise. Money supply data will be more reliable, however, once Y2K related investment behaviour ceases to distort figures.