Crisis damps consumer recovery

NEW YORK (Reuters) - Consumer confidence rose to a seven-month high in September but not as much as previously thought as worries over the growing financial crisis clouded the outlook, a survey showed on Friday.

The Reuters/University of Michigan Surveys of Consumers said the final reading of its index of confidence rose to 70.3 in September from 63.0 in August. It was the highest final reading since 70.8 in February.

However, it was below economists' expectations for a reading of 71.0, according to the median of their forecasts in a Reuters poll. It was also down from 73.1 recorded in the Surveys' of Consumers' preliminary report released on Sept 12.

"The rebound in consumer confidence ended amid heightened concerns about the growing financial crisis, although these concerns arose too late in the month to completely erase the earlier gains," the report said.

Financial markets are in the grips of a year-long credit crisis caused by the worst housing slump since the Great Depression, which has also slowed the broader economy.

The credit turmoil has worsened in recent days, and pressure mounted on lawmakers on Friday to agree on a $700 billion financial rescue plan after talks at the White House broke down in acrimony and the biggest bank closure in U.S. history roiled global markets.

However, helping consumers' outlook, worries over inflation moderated this month, but also not as much as previously thought.

The survey's reading on one-year inflation expectations fell to 4.3 percent -- the lowest since 4.3 percent in March -- from 4.8 percent in August.

In the preliminary report, one-year inflation expectations had come in at 3.6 percent.

Five-year inflation expectations eased to 3.0 percent, which was also the lowest since March. It was down from 3.2 percent in August but slightly higher than the 2.9 percent recorded in the preliminary report for September.

The index of consumer expectations rose to 67.2 in September from 57.9 in August. That was its highest since 68.1 in January.

(Reporting by Burton Frierson, Editing by Chizu Nomiyama)