*Fed bank survey: fewer banks tightening lending standards *Fed says pace of weakening of loan demand eased *Lenders coming off peaks of tight credit during crisis

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By Mark Felsenthal

WASHINGTON, Nov 9 (Reuters) - The percentage of banks tightening lending standards declined in the third quarter, while loan demand fell less sharply as the economy began to grow, the Federal Reserve said on Monday.

While showing credit was still tight and loan demand soft, the Fed's October survey of bank loan officers signaled a further easing in the number of banks tightening credit, which hit a peak last year as the financial crisis deepened.

"We're coming off the spikes in terms of credit tightness," said Brian Bethune, an economist for IHS Global Insight in Lexington, Massachusetts. "We're back to just normally tight, not pathologically tight," he said.

Easier credit could help the economy recover from its deepest recession since the 1930s, although consumers and businesses still appear wary of taking on debt.

The U.S. economy expanded at an annualized rate of 3.5 percent over the July-September period, likely ending the recession. Unemployment, however, reached a 26-1/2 year high of 10.2 percent in October, and analysts expect the economy's recovery to be sluggish.

The Fed's survey of banks operating in the United States found the percentage that were tightening standards and terms for most loan categories dipped from levels reached last year.