More than two-thirds of banks in a Federal Reserve survey of senior loan officers said they had tightened credit to European financial firms in January, underscoring the continent's severe banking crisis.

The survey, published on Monday, also found U.S. banks snapping up business from their beleaguered European competitors, countering the notion that new regulations are hurting Wall Street's competitiveness.

About half of the respondents who reported competing with European banks noted such an increase in business, the Fed said.

There was also more widespread tightening of standards to non-financial firms that have U.S. operations and significant exposure to European economies.

Policymakers worry that a freezing up of bank lending in Europe could spill over into the United States, potentially threatening a fragile economic recovery.

Still, the findings painted a more benign picture of U.S. credit markets: Domestic lending standards were largely unchanged this month and loan demand picked up somewhat.

The uptick in credit demand is a welcome development for the recovery as it could be an indication that businesses and consumers alike are beginning to feel more confident, said Millan Mulraine, a strategist at TD Securities in Toronto.

Demand for home equity loans fell, the survey found, a sign of the housing sector's persistent weakness.

(Reporting By Pedro Nicolaci da Costa; Editing by Neil Stempleman, Andrew Hay and Dan Grebler)