Instant View: January core prices up 0.3

NEW YORK (Reuters) - U.S. incomes rose much more sharply than expected in January, while spending and core consumer price growth also outpaced forecasts.

Incomes rose 1.0 percent in January, marking their biggest gain in a year and doubling an unrevised 0.5 percent gain for December, while January consumer spending rose 0.5 percent after a 0.7 percent increase in December, the Commerce Department reported.

Analysts polled by Reuters had expected personal income to rise just 0.3 percent, and personal consumption expenditures to rise 0.4 percent.

KEY POINTS: - Core consumer prices rose 0.3 percent, outpacing forecasts for a 0.2 percent rise after an unrevised 0.1 percent gain in December. - The core prices were up 2.3 percent compared with a year earlier after an unrevised 2.2 percent 12-month gain in December.

JOBLESS CLAIMS: The number of U.S. workers filing for first-time jobless benefits rose 7,000 last week, pushing the four-week moving average of new claims to its highest level in more than a year.

Initial jobless claims hit a seasonally adjusted 338,000 for the week ended February 24. Economists polled ahead of the report were expecting claims to fall to 325,000 in the latest week.

COMMENTARY:

GARY THAYER, CHIEF ECONOMIST, A.G. EDWARDS AND SONS, ST.

LOUIS, MISSOURI:

"The jobless claims number was a little bit higher than expected, but was still in a range typical for a slow-growing economy. We're also in the period here where we had cold weather throughout much of the country and that could have affected claims on the upside. But it's still a relatively healthy level of new jobless claims compared to where we would be if the economy were in a recession when typically new jobless claims would be up around 400,000.

"The core PCE price number was still above the Fed's comfort zone on a year over year basis. This suggests that the Fed is probably going to hold interest rates steady for a while. The bond market, which was up in the morning on the weakness in stocks, may have softened a bit on the news. The good personal income number initially supported the stock market and dampened the safety bid in bonds."

ALAN RUSKIN, CHIEF INTERNATIONAL STRATEGIST, RBS GREENWICH

CAPITAL, GREENWICH, CONNECTICUT:

"Mixed U.S. data but on balance will still feed into market suspicions that there is some deterioration in the labor market (even allowing for dodgy seasonals for initial claims) at the same time as core inflation is proving a little sticky.

"Net-net, the market will view this data as playing slightly dollar negative in and of itself, but this will be quickly superseded by equity gyrations. Plainly the market remains extremely nervous, and risk appetite remains vulnerable to further retrenchment."

VICTOR PUGLIESE, DIRECTOR OF LISTED EQUITY TRADING, FIRST

ALBANY CORP. IN SAN FRANCISCO:

"(Stock) futures were getting hit pretty good before this came out. The yen (move) was just another excuse to move the market ... and apparently Europe tanked pretty big.

If you look at personal income and spending, that's all somewhat inflationary. But jobless claims should offset the other numbers. I don't think it means that much for the (stock) market. The manufacturing number is going to be fairly significant."

DUSTIN REID, SENIOR CURRENCY STRATEGIST, ABN AMRO, CHICAGO:

"The core PCE is definitely higher-than-expected, but not as bullish for the dollar as the initial number suggests. If you take the PCE number to three decimal places, it's 0.254, barely reaching 0.3 percent.

"The report overall is mildly bullish for the dollar. The markets are more interested in the ISM later today. We had a bigger move in dollar/yen because we have the 200-day moving average at 117.45. Anytime, we approach that, you would see capitulation."

BETH MALLOY, BOND MARKET ANALYST, BRIEFING.COM, CHICAGO:

"The numbers are definitely a tick or two higher than we expected but at the same time the game was already going in advance of this. Everybody I've talked to has said we were actually led by the equities stuff."

DANIEL KATZIVE, CURRENCY STRATEGIST, UBS, STAMFORD,

CONNECTICUT:

"The market is much more focused on general financial market conditions and especially on the S&P futures and equity performance in Europe.

"If you look at the rate markets, rate expectations started to fall when stocks started to fall and carry trades came under more pressure.

"This is the classic carry trade pressure pattern, similar to what we saw the day before yesterday."

THIERRY ELIAS, HEAD CURRENCY TRADER, BANQUES NATEXIS

POPULAIRES, NEW YORK:

"I don't think there was much to react to with this data. It was in line with expectations, and there's not much to scare us on the inflation front. We're seeing the continuation of the yen carry trade liquidation. It's 'buy yen, buy yen, buy yen' right now.

"The yen is the flavor of the week and I think this can keep going. But few can say how far, because nobody knows exactly how big the positions in the carry trade are. But you have to guess it can keep going. And depending on what the stock market does today, you could see more dollar selling."

MARKET REACTION: - The benchmark 10-year Treasury note pared its price gains slightly, but traded up 10/32 in price for a yield of 4.54 percent. - The dollar was steady against the euro at $1.3220 after the U.S. data. Against the yen, the dollar extended losses to 117.48 from 117.65 yen just before. - U.S stock index futures briefly dropped further after PCE and jobless claims exceed estimates. The futures index still points down.