Rising gasoline prices sour consumer mood

NEW YORK (Reuters) - Rising gasoline prices beat down U.S. consumer sentiment in early January, overshadowing an improved job outlook and passage of temporary federal tax breaks, a survey released on Friday showed.

A year-end surge in gasoline prices ratcheted up consumer inflation expectations to their highest in more than two years, according to the latest data from Thomson Reuters and the University of Michigan.

The surveys' preliminary January reading on the overall consumer sentiment slipped to 72.7, below 74.5 in December. It fell short of a 75.4 reading predicted by economists polled recently by Reuters.

Consumers' current mood deteriorated with average gasoline prices stuck above $3 a gallon. The surveys' barometer of current economic conditions was 79.8 in early January, down from 85.3 in December and below a forecast of 84.6.

The surveys' one-year inflation expectation rose to 3.3 percent from 3.0 percent in December, which was the highest since October 2008. But the five-to-10-year inflation outlook held steady at 2.8 percent for a fourth straight month.

On the other hand, the negative effect from consumers spending more at gasoline stations did not reduce their optimism on the economy.

The survey's gauge of consumer expectations rose to 68.2 from 67.5 in December. It was roughly in line with a predicted reading of 68.3.

Moreover, the 12-month economic outlook index jumped to 87, which was the highest since September 2009.

In early January, just 21 percent of consumers surveyed expected the unemployment rate to increase in the year ahead, the lowest figure recorded in 10 years.

"The stronger performance of the economy was expected to be reflected in the near term by more favorable expected changes in employment," Richard Curtin, director of surveys of consumers from Thomson Reuters and University of Michigan, said in a statement.

(Reporting by Richard Leong; Editing by Padraic Cassidy)