Irish consumer sentiment hits two-year high in July

A man looks at a window display of jewellery on Grafton Street, Dublin, November 18, 2010.

DUBLIN (Reuters) - Irish consumer sentiment hit a two-year high in July on more positive economic news in Ireland and as fears of a major escalation of the euro zone debt crisis receded.

The KBC Ireland/ESRI Consumer Sentiment Index rose to 67.7 in July from 62.3 in June, the strongest reading since June 2010, building on an improving trend in recent months.

A relatively benign start to 2012 helped push the index higher in each month of the first quarter after a nosedive of 11 points in December to 49.2, the largest monthly drop in over a decade, on fears of a Europe-wide economic meltdown.

The improvement in consumer sentiment in Ireland contrasts with recent falls in UK, euro zone and U.S. consumer confidence.

That suggest domestic economic events triggered the jump in sentiment, such as the statement by European leaders that they will look at cutting the cost of Ireland's bank bailout and the government hitting its budget targets.

"The survey suggests that the all-enveloping gloom of recent years is beginning to slowly lift," said Austin Hughes, economist at KBC Bank Ireland.

With an improvement in four of the five main components of the survey in July, and the strongest improvement in relation to the outlook for the Irish economy over the next 12 months, the data suggests domestic spending may be stabilizing, Hughes said.

Despite having the euro zone's fourth highest unemployment rate, and with domestic demand stagnant, Ireland is set to be the only country in the euro zone periphery to post growth this year and next, according to a recent survey by Morgan Stanley.

The July survey showed consumers remain cautious, however, the reading remains far short of a 17-year average of 86.8.

"Increase in the sentiment index reflects an easing in negative responses rather than a surge in positives. So fears are fading but 'feel good' is still in short supply," said Hughes.

(Reporting by Lorraine Turner; Editing by Catherine Evans)