Fears that the eurozone would suffer significant economic fall-out from the global credit squeeze heightened on Friday after the European Central Bank reported a sharp slowdown in demand for loans to business and a significant toughening of credit standards applied by banks.

Demand for loans by business was the weakest for two years and a further deterioration was expected in the final months of the year, according to the ECB bank lending survey. The percentage of banks reporting that they had tightened credit conditions over the past three months on loans to business and to people buying houses was the largest since the survey began in early 2003.