INSTANT VIEW: Consumer sentiment strongest in three months

NEW YORK (Reuters) - U.S. consumer sentiment rose in early September to the strongest in three months with growing expectations the economy will improve, a survey showed on Friday.

KEY POINTS: * The Reuters/University of Michigan Surveys of Consumers said its preliminary index of sentiment for September rose to 70.2, the highest since June, from 65.7 in August. This was above economists' median expectation of a reading of 67.3, according to a Reuters poll. * The index of consumer expectations climbed to 69.2 in early September, up from 65.0 in August. * "Confidence rebounded in early September as consumers increasingly expected the economy to improve despite their reluctant conclusion that their own financial situation would remain quite problematic for some time," the Reuters/University of Michigan Surveys of Consumers said in a statement. * Within the survey, the 12-month economic outlook index rose to 79, the highest since September 2007, from 69 in August. The 1-year inflation expectation eased to 2.6, the lowest since March, and down from 2.8 in August. * The index of consumer expectations rose to 69.2 in early September from 65.0 in August.

COMMENTS:

ANDREW BUSCH, GLOBAL FX STRATEGIST, BMO CAPITAL MARKETS,

CHICAGO:

"They came out much better than expected. We saw the dollar sell off ... but it was short-lived. Consumer confidence is tied closely to retail sales and consumer spending and one would hope that with an increase in consumer confidence, we would see an increase in retail sales. The interesting disconnect globally is that this has not been the case. We've seen snap-backs in consumer confidence in Australia and in the U.K. without having a snap-back in retail sales. So that's what we're looking for. Whether this plays out to see stronger retail sales is the key."

KIM RUPERT, MANAGING DIRECTOR OF GLOBAL FIXED INCOME ANALYSIS,

ACTION ECONOMICS LLC, SAN FRANCISCO:

Consumer sentiment is "not really a surprise given the gains in stocks that we've seen and the data pointing more toward a recovery in hand. We were expecting sentiment to improve.

"It didn't look like Treasuries have done a whole lot on it. I would've thought we might have seen a bigger reaction in stocks, which we didn't.

"Treasuries are maintaining a bid. I didn't find anything particularly friendly for bonds in the report. The inventories report is a little bit more friendly but that's typically not much of a market mover.

"It looks like Treasuries maintain a bid no matter what."

JOHN CANALLY, ECONOMIST, LPL FINANCIAL, BOSTON:

"Typically what leads the economy out of recession is not the consumer, it's business spending, it's spending on housing and lately it's been export growth. So the consumer doesn't have to lead, it just has to get out of the way or not be a drag.

"With all those things going in the right direction, with the stock market up, housing prices stabilizing, layoffs ending and a big drop in energy prices putting a lot more money in people's pockets, that's enough for the consumer to hang in there, and that's all we need to set the stage for recovery."

KEITH HEMBRE, CHIEF ECONOMIST, FAF ADVISORS, MINNEAPOLIS

"We have increases in both current conditions and expectations. It's in line with broad improvement in sentiments. I don't think this signals a wild upward break-out.

"This doesn't have any implications for next week's retail sales number. That will be driven by the 'Cash for Clunkers' program.

"Broadly, I expect consumer spending to grow by 1 percent on a real basis in the third quarter. GDP will be about 3 percent with much of the contribution from less inventory de-stocking."

MICHAEL POND, TREASURY AND INFLATION-LINKED STRATEGIST,

BARCLAYS CAPITAL, NEW YORK:

"Data continues to surprise to the upside."

"The TIPS (Treasury Inflation Protected Securities) market one-year break-even, where minus-50 basis points is priced in, is priced for much lower inflation than the Michigan figure. We continue to believe that the short end of the TIPS market is significantly mispriced."

DAN FARETTA, SENIOR MARKET STRATEGIST, LIND-WALDOCK, CHICAGO:

"The number is better than expected, and it should give the market a little boost, but I don't think the market will give it too much consideration. The unemployment number we had last week was more important. We might see a small rally on this, but I think we'll then sell off in the afternoon. The number is positive news, but unemployment is more important. I think the market will take this with a grain of salt."

MARKET REACTION: STOCKS: U.S. stock indexes edged higher before slipping. BONDS: U.S. Treasury debt prices were mixed. DOLLAR: U.S. dollar was stronger against the yen and euro.