U.S. consumer spending rose slightly more than expected in June, a government report showed on Tuesday, likely pushed up by higher gasoline prices, and incomes saw their biggest drop in four-and-a-half years.

The Commerce Department said spending rose 0.4 percent, boosted by expenditures on nondurable goods, after a revised 0.1 percent increase in May, which was previously reported as a 0.3 percent rise.

That compared to market expectations for a 0.3 percent increase in spending, which accounts for over two-thirds of U.S. economic activity. However, adjusted for inflation, spending fell 0.1 percent after being flat in May.

I think the data shows that consumer confidence appears to be bottoming and turning higher, though headwinds from job losses remain a significant hurdle, said Alan Gayle, senior investment strategist at Ridgeworth Investments in Richmond, Virginia.

Personal incomes declined 1.3 percent in June, however, as the effects of one-time government stimulus checks in May wore off, and U.S. stock index futures extended losses after the report while government bond prices rose.

The drop in personal income was the biggest decrease since January 2005 and was larger than market expectations for a 1.0 percent drop.

It's obviously a modestly sharper decline than had been expected, but it's very much affected by the unwinding of the transfer payments from the Obama administration stimulus plan, said Hugh Johnson, chief investment officer at Johnson Illington Advisors in Albany, New York.

The good news is that personal spending rose, he said.

Spending on nondurable goods rose 1.7 percent in June after a 0.1 percent rise in May. Spending on services also was up slightly, but consumption of durable goods, like appliances and cars, fell 0.2 percent.

High unemployment, reduced access to credit and sagging house prices are undermining personal incomes, hurting consumer spending.

A government report last Friday showed spending fell at a 1.2 percent rate in the second quarter, after rising 0.6 percent in the January-March period.

While the recession's grip on the economy appears to be slackening, consumers remain reluctant to open their wallets, opting instead to save any extra income. This has raised concerns that the economic recovery will be tepid.

Real disposable income tumbled 1.8 percent in June, the largest decline since last June, the Commerce Department said. The decline in income saw a decrease in savings during the month.

Savings fell to an annual rate of $505 billion, with the saving rate slipping to 4.6 percent versus 6.2 percent in May. A measure of inflation closely watched by the Federal Reserve, the year-on-year personal consumption expenditures index excluding food and energy rose 1.5 percent after a 1.6 percent increase in May.

(Reporting by Lucia Mutikani; Additional reporting by Ryan Vlastelica and Charles Mikolajzcak in New York, Editing by Andrea Ricci)

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