UPDATE 2-McDonald's absorbs some costs to keep customers-CEO

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By Brad Dorfman

OAK BROOK, Ill., May 22 (Reuters) - McDonald's Corp (MCD.N: Quote, Profile, Research, Stock Buzz) is willing to absorb some of the higher costs for ingredients such as oil, meat and dairy to promote customer loyalty, Chief Executive Jim Skinner said on Thursday.

"This is not the time to be passing that on to consumers. They have long memories," Skinner said.

U.S. consumers are weathering a perfect storm as the economy struggles, unemployment rates increase and costs rise for necessities such as gas and food.

"We're the value leader. We always have been, and they expect us to continue to be the value leader," Skinner said.

McDonald's low-price dollar menu items, which include a double cheeseburger, have been popular with cash-strapped customers.

The menu fuels store traffic and the additional volume has helped protect profits by knocking out some of the pressure from higher commodity costs.

McDonald's Chief Operating Officer Ralph Alvarez also said the fast-food purveyor will be very aggressive with value- priced food and beverages during the summer, when gas prices tend to rise.