FRANKFURT (Reuters) - Loans to the euro zone's private sector contracted for the 12th month in a row in April, as the region's recession dents investments and spending despite the European Central Bank's loose monetary policy.

Loans fell 0.9 percent from the same month a year ago, ECB data showed on Wednesday, a slightly bigger fall than the mid-range forecast for a drop of 0.7 percent in a Reuters poll of economists.

Euro zone M3 money supply - a more general measure of cash in the economy - grew at an annual pace of 3.2 percent in April, accelerating from 2.6 percent in March and above the consensus of 2.9 percent from analysts polled by Reuters.

But David Brown at New View Economics said the M3 acceleration "does not let the ECB off the hook for further policy easing."

"Consumers need access to more credit to support spending. Companies need access to easier credit to finance investment and growth. Neither are getting it," Brown added. "Without it, vibrant euro zone recovery could be denied for years."

Banks granted non-financial firms 18 billion euros less loans in April than in the previous month, data adjusted for sales and securitizations showed, after a fall of 2 billion euros in March.

"The ECB can only go so far with policy in its conventional sense," Brown said.

With the euro zone stuck in recession, ECB Executive Board member Peter Praet said on Tuesday the central bank can still cut interest rates further to stimulate the economy if needed.

The ECB's Governing Council is debating whether to cut the deposit rate - the interest paid on money that commercial banks park at the central bank - below zero to encourage them to lend more. Critics say such a move could destabilize money markets.

To boost lending to small euro zone companies, the ECB is also looking at ways to revive an asset class that was widely criticized for its role in the financial crisis - asset-backed securities (ABS).

These allow banks to move at least some credit risk off their balance sheets by packaging individual loans into new instruments and selling them on to other investors.

Credit markets were paralyzed during the crisis when such securities became toxic due to the default of housing loans that underpinned them.

But the ECB is now considering whether such securities could help the euro zone's small- and medium-sized enterprises (SMEs), the bloc's economic backbone, saying that not all ABS are bad.

(Writing by Paul Carrel; Editing by John Stonestreet)