U.S. consumers increased spending for an eighth straight month in February, but much of the gain went to cover rising food and energy costs, providing only a modest lift to the economy.

Though the report from the Commerce Department on Monday was the latest to suggest the rising cost of living would dent growth in the first quarter, the recovery from the worst recession since the 1930s remains intact.

Spending rose 0.3 percent, when adjusted for inflation, after being flat in January. Prices rose 0.4 percent, the most in just over 1-1/2 years. Consumer spending accounts for about 70 percent of U.S. economic activity.

Another report showed pending sales of previously owned homes unexpectedly rose in February, pointing to a rebound in sales in March after a string of poor housing market data.

Consumer spending is going to come in weaker relative to what the consensus is expecting and that in turn means the growth expectations are too high. But it doesn't mean that the consumer is going to roll over, said Neil Dutta, an economist at Bank of America Merrill Lynch in New York.

Before adjusting for inflation, spending rose 0.7 percent. Incomes rose 0.3 percent after rising 1.2 percent in January.

With consumption outpacing income growth, households cut back on saving to cover higher living costs. Savings fell to an annual rate of $676.7 billion from $710.5 billion in January.

Stocks on Wall Street were modestly lower, while prices for government debt were mixed. The dollar was little changed against a basket of currencies.

AUTO SALES WATCHED

Consumer spending, rose at a 4 percent annual rate in the last three months of 2010, the quickest in more than four years. That helped spur the economy ahead at a 3.1 percent pace.

Many economists expect spending to grow at a fairly tepid rate of between 2 and 2.5 percent in the first quarter, with the overall economy expanding between 2.5 and 3.5 percent.

But some see auto sales firming and expect overall spending to be fairly solid.

Anecdotal reports suggest at least moderately strong auto sales are in store for March which could add to total consumer spending for the first quarter said Stuart Hoffman, chief economist at PNC Financial Services in Pittsburgh.

Automakers release March's sales figures on Friday.

Consumers last month spent more freely on long-lasting goods, such as cars, and some economists took that as a sign of confidence in the economy.

We will carefully watch Friday's March vehicle sales data to see if the trend appears to be continuing even though consumer attitudes have soured in March on higher energy prices, said Joseph LaVorgna, chief U.S. economist at Deutsche Bank in New York. A report on Friday showed consumer sentiment at its lowest level in more than a year.

The spending report showed food and energy prices pushing up inflation in February. The personal consumption expenditures price index rose 0.4 percent, the fastest since June 2009, after gaining 0.3 percent in January.

In contrast, a core price measure, which strips out food and energy costs to provide a better view of inflation trends, rose just 0.2 percent, the same as in January.

The core index, which is closely monitored by officials at the Federal Reserve, was up 0.9 percent in the 12 months through January. The index hit a record low of 0.7 percent in December.

Fed Chairman Ben Bernanke has said high food and energy costs should prove transitory, but that the central bank was prepared to act if needed to ensure an inflation psychology does not take root.

With growth picking up and the labor market improving, Federal Reserve policymakers have been debating whether it is time to curtail the central bank's $600 billion bond buying program aimed at supporting the economy by keeping interest rates low.

Ben Bernanke Energy