(Reuters) -- Borrowing by U.S. companies to buy equipment jumped in January from a year ago, though it slid from December's rush to close loans before year-end, and credit quality improved to pre-recession levels, the Equipment Leasing and Finance Association said Friday.

Lingering uncertainty about the European economy is keeping businesses cautious, stuck largely in a cycle of purchases to replace aging equipment rather than for expansion.

New equipment acquisition will gradually and steadily improve, ELFA Chief Executive William Sutton said in an interview. We are in the midst of regaining some of the momentum that was lost during the recession. Overall, we are back to the pre-recession levels of growth.

Amid signals of gradual economic and job growth, businesses signed on for $5.1 billion in loans, leases and lines of credit in January, 53 below December's spike to $10.8 billion but 21 percent higher than $4.2 billion a year ago, ELFA said.

Economists broadly project steady economic expansion, but the outlook is dogged by significant global uncertainty, Sutton noted.

I've attended several meetings in Washington over the last two weeks where we've talked about manufacturing projections and other economic briefings and projections, and without exception they always bring up that wild card of Europe and not really knowing how that's going to play out, he added.

In one sign of slowly mending consumer confidence, the Thomson Reuters/University of Michigan's sentiment index, reported on Friday, rose in February to a one-year high.

Similarly, the Equipment Leasing & Finance Foundation, a non-profit affiliate of ELFA, said its confidence index for February, the latest data available, rose to 59.6 from 59.0 in January.

The agriculture sector continues to operate at very high levels and equipment sales and financing are robust, Daniel McCabe, senior vice president of sales and marketing for John Deere Financial in Johnston, Iowa, said in a statement. The construction sector is recovering from a deep recession beginning with increases in the rental fleet portion of the industry.

Credit quality measures kicked off 2012 by improving to the best levels since 2006, ELFA said.

The group said 1.9 percent of borrowers were late by more than 30 days on their debts, down from 2.1 percent in December and the lowest level since 2006.

Charge-offs, which reflect loans unlikely to be repaid, slipped to 0.5 percent after holding at 0.7 percent for three straight months. The rate reached 3 percent as recently as 2009 and has fallen steadily as companies cleaned up portfolios of poorly performing loans, the group said.

ELFA's monthly index is based on a survey of 25 member organizations, including Bank of America Corp , and financing affiliates or subsidiaries of Canon Inc <7751.T>, Caterpillar Inc , Dell Inc , Siemens AG and Verizon Communications Inc , among others.

(Reporting By Lynn Adler; Editing by Neil Stempleman)

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