TOPWRAP 8-U.S. data shows promise, but fears still linger

* U.S. consumer spending rises for first time since Feb

* U.S. savings rate hits record; DJIA falls

* German inflation up slightly but prices likely to fall

* Japan posts record deflation in year to May

* UBS plans to raise $3.5 billion, sees 2nd qtr loss (For more on the global crisis, click [nCRISIS])

By Bernard Orr and Steve Orlofsky

NEW YORK, June 26 (Reuters) - Reports on Friday showing rising consumer confidence and personal income in the United States suggested the worst recession in seven decades may be abating, but fear still lingered that the economy will take time to bounce back as the U.S. savings rate hit a record.

Data showed that while U.S. consumer spending and income both rose in May as government stimulus money spread through the economy, much of it was being stashed away.

U.S. savings jumped to a record annual rate of $768.8 billion, the highest since records began in 1959, and the saving rate climbed to a 15-year high of 6.9 percent. For details see [ID:nN26322638].

"We need people to spend money in order to keep the economy humming," said Joe Kinahan, chief derivatives strategist at online brokerage thinkorswim Group in Chicago. "The consumer has been the stalwart of the economy at this point, and we still need them to be."

The Dow Jones industrial average .DJI fell 34.01 points, or 0.40 percent, to close at 8,438.39. The Standard & Poor's 500 Index .SPX shed 1.36 points, or 0.15 percent, to 918.90. The Nasdaq Composite Index .IXIC gained 8.68 points, or 0.47 percent, to 1,838.22.

The dollar .DXY and oil CLc1 slipped, while the U.S. government bond prices rose on Friday. [MKTS/GLOB] [O/R] [FRX/]

U.S. consumer spending rose last month for the first time since February as stimulus money pushed incomes up sharply, the Commerce Department said on Friday, supporting the view that the nation was close to pulling out of recession. [ID:nN26322638]

Consumer spending, which accounts for over 70 percent of U.S. economic activity, rose 0.3 percent in May, while April's reading was revised up to flat from slightly negative.

"This confirms our forecast that the economy is going to move into positive territory in the third quarter," said Mark Vitner, an economist at Wachovia in Charlotte, North Carolina.

Dallas Federal Reserve Bank president Richard Fisher also said on Friday the U.S. economy is poised to return to growth, most likely late in the second half of 2009, but the early stages of the recovery will not be strong. [ID:nN26344846)

Meanwhile, signs that the weak U.S. housing market will rebound failed to materialize as KB Homes (KBH.N), the No. 5 U.S. homebuilder, posted a wider-than-expected quarterly loss and said orders had declined year on year. [ID:nN26327183]

In Europe, markets fell even as policymakers insisted that the euro zone faces no serious risk of deflation. But data on Friday showed that annual German inflation was just 0.1 percent in June -- up from zero in May. Analysts still expect consumer prices to start falling soon in Europe's dominant economy although it is unlikely to suffer a Japan-style malaise. [ID:nLQ616307]

"German inflation is still at its lowest level since June 1987 and is bound to shortly enter negative territory in the months ahead before increasing again towards the end of the year," said Carsten Brzeski at ING Bank.

Asian shares rose, with Japan's Nikkei average .N225 closing higher. In Japan, consumer prices fell 1.1 percent in May from a year earlier, the deepest slide since records began in 1970, as weak consumer demand and a slack export market persisted.

Japan's consumer price numbers were another sign of weakness in Japan's economy, which is beset by its second bout of deflation this decade. The global recession has undermined demand for its exports while demand at home is shaky too. [ID:nT58234]

UBS TO RAISE CAPITAL

In Switzerland, consumer prices fell in May at the fastest pace in 50 years. The central bank is waging war on deflation with a series of mostly unconfirmed market interventions to stop the Swiss franc rising, most recently on Thursday.

The Swiss National Bank got some possible relief from its other big headache when UBS (UBSN.VX)(UBS.N) sought to raise new capital, although the giant bank still has daunting problems to overcome.

UBS, one of the hardest-hit major banks in the financial crisis, said late on Thursday it planned to raise 3.8 billion Swiss francs ($3.46 billion) in a share sale. [ID:nLQ421864]

UBS, the world's largest wealth manager, also forecast a second-quarter loss, sending its stock lower on Friday as analysts said problems remained. UBS shares closed down 5.2 percent at $12.30 on the New York Stock Exchange. (Editing by James Dalgleish)