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Following the instruction of Igor Federenko from page https://issues.sonatype.org/browse/MNGECLIPSE-1500?focusedCommentId=134885#comment-134885 I report the bug here. I am running STS 2.7 (Eclipse Indigo) on Windows 7 64 bit. I am using both user settings and global settings file and localRepository is defined in global settings file. When I moved configuration of <localRepository> to user settings it works
STS still contains an old version of m2e. Can you retry with m2e 1.0
Regardless of version of m2e included with STS, as an Eclipse opensource project we are only able to troubleshoot m2e when installed on one of distributions provided by Eclipse.org, like "Eclipse IDE for Java Developers" which includes m2e out of the box. For STS support please contact STS developers.
I see in installation Details that STS uses Maven Integration for Eclipse 0.12.1... (org.maven.ide.eclipse). From what I understood this is not supported anymore and should be replace with (org.eclipse.m2e) Thank you for your help Igor and Matthew.
closing as per last comment.
Moved to https://github.com/eclipse-m2e/m2e-core/issues/