INSTANT VIEW: U.S. consumer confidence at 28-year low: U.Mich

NEW YORK (Reuters) - U.S. consumer confidence fell to a 28-year low in May as inflation expectations soared, according to a survey released on Friday that presents a dilemma for the Federal Reserve.

Business activity in the U.S. Midwest contracted in May for the fourth consecutive month but the rate of downturn moderated, a report showed on Friday.

KEY POINTS:

REUTERS/UNIVERSITY OF MICHIGAN: * The Reuters/University of Michigan Surveys of Consumers said the final reading in May for its index of confidence fell to 59.8 from April's 62.6, slightly above the median expectation of 59.5 in a Reuters survey of economists. * May's reading was the lowest since 58.7 in June 1980 but it was slightly higher than the preliminary reading of 59.5 published earlier this month. * However, the improvement was marginal and the report still paints a troubling picture, with one-year inflation expectations surging to 5.2 percent -- the highest since February 1982 -- from 4.8 percent in April.

CHICAGO PMI: * The National Association of Purchasing Management-Chicago business barometer rose to 49.1 in May from 48.3 in April. * A reading below 50 indicates contraction. * The median forecast in a Reuters poll of analysts called for a reading of 48.5. * Many analysts consider the NAPM-Chicago survey a factory report since the region is relatively industrialized, but service sector companies and nonprofits are also polled.

COMMENTS:

JOSHUA SHAPIRO, CHIEF U.S. ECONOMIST, MFR, INC., NEW YORK:

REUTERS/U. MICHIGAN CONSUMER SENTIMENT: "A very weak trend for consumer spending is the most likely scenario in the near to medium term, with debt-laden households facing a weakening labor market and consequent diminution of income growth, along with an increasingly ill housing sector and the sapping influence on discretionary spending from higher energy and food prices."

CHICAGO PMI: "Looking ahead, while export growth looks set to remain solid at least over the near term, an increasingly constrained consumer, deepening woes for the housing sector, and a degree of unwanted inventory accumulation in Q1 will all weigh on manufacturing output, which we expect to remain weak for some time."

DAVID WYSS, CHIEF ECONOMIST, STANDARD & POOR'S RATINGS

SERVICES, NEW YORK:

CHICAGO PMI: "It says manufacturing is still sluggish, but we have wait for the national ISM number to come out."

"Prices paid are rising, reflecting high commodity prices. We are seeing a break in them the few days but it won't show up until next month."

REUTERS/U. MICHIGAN CONSUMER SENTIMENTS: "Down below 60 is recession range. Consumers are running scared. These price data are bad for consumers and businesses. We are not going to see the economy getting better any time soon. We are still in the early stages of the recession. The consumers have hung in as well as they have. They are going to be spending the rebate checks in the next months, but how long can they live beyond their means?"

ROBERT LUTTS, CHIEF INVESTMENT OFFICER, CABOT MONEY MANAGEMENT,

SALEM, MASSACHUSETTS:

CHICAGO PMI: "(A number around) 42 would have been worrisome, but this shows we're not falling off a cliff. It sort of confirms what we've been seeing is an economy that's lumbering through and continues to chug along at a slow pace. Frankly I think it's surprising because a lot of expectations were that we'd have significantly weaker data in these last few reports. Some of the retail reports we're seeing show the consumer is hanging in there and business investment is not dying. We're one of the more adaptable economies in the world and we're showing it again. I still believe we're going to have a challenging next few quarters, but these are refreshingly strong statistics, of course it's really relative to expectations."

RON SIMPSON, DIRECTOR OF FOREIGN EXCHANGE RESEARCH, ACTION

ECONOMICS, TAMPA, FLORIDA:

CHICAGO PMI: "It is a better than expected report. Despite the fact that it is a regional report there was some concern the outcome could have been weaker due to the soft auto sector. Overall this is good news for the dollar. We have had decent data. Not burning down the barns but definite signs of a stabilizing economy."

MARKET REACTION: * BONDS: U.S. Treasury debt prices held gains * CURRENCIES: U.S. dollar held gains against the yen * STOCKS: U.S. equity indexes edge higher * RATE FUTURES: U.S. short-term interest rate futures were unchanged, pricing in a zero percent probability of a 25 basis point rate cut at the Fed's June meeting.

EARLIER DATA FROM MAY 30:

U.S. personal spending rose by 0.2 percent in April as forecast and a key measure of inflation moderated, government data on Friday showed.