Rising gasoline and food prices lifted U.S. consumer spending in March and the increase in overall inflation from a year-ago was the largest in 10 months, government data showed on Friday.

KEY POINTS: * The Commerce Department said consumer spending increased 0.6 percent, rising for a ninth straight month, after an upwardly revised 0.9 percent advance in February. * Economists polled by Reuters had expected spending, which accounts for about 70 percent of U.S. economic activity, to rise 0.5 percent in March after a previously reported 0.7 percent rise. * When adjusted for inflation, spending edged up 0.2 percent last month after rising 0.5 percent in February.

COMMENTS:

OMER ESINER, CHIEF MARKET ANALYST, COMMONWEALTH FOREIGN EXCHANGE, WASHINGTON:

The data is pretty positive. We're seeing a further improvement in personal spending and personal income. That's the type of news that going forward could keep consumer spending well supported and ultimately keep the overall economy on track for a modest rebound. But I don't think it's going to have a big impact on the dollar because it doesn't really change the outlook for interest rates, which is the key driver for it.

GERARD GREENBERG, VICE PRESIDENT OF INSTITUTIONAL SALES AT MERLIN SECURITIES IN NEW YORK

Each of the numbers, for the most part, was relatively in line with expectations, so there's nothing exciting here. Earnings are still the focus, but if the data was exponentially better or worse than expected it would matter.

CHRISTOPHER LOW, CHIEF ECONOMIST, FTN FINANCIAL, NEW YORK

Real incomes, when adjusted for inflation, are shrinking over time. What we are seeing in this monthly data is similar to what the quarterly GDP data yesterday, the story in the first quarter was higher gas prices are forcing people to spend more at the expense of other items.

The inflation burden increased in the quarter, things were progressively worse as you moved from January to March.

Income data also rose a bit more than expected, but it's not growth in wage and salary income that is driving the headline numbers, it's other income, things like dividends and capital gains, which were decent in March. Also we're still seeing significant transfer payments from the government, there is significant government assistance in the income numbers.

DAVID SLOAN, ECONOMIST, IFR ECONOMICS, UNIT OF THOMSON REUTERS

March personal income and spending gains of 0.5% and 0.6% respectively both outpaced their respective consensus estimates by 0.1%, but there was not much fresh information in the data, with Q1 totals already visible in the GDP report. Personal spending saw both January and February gains revised up by 0.2%, to 0.5% and 0.9% respectively, but revisions to income were minor (January down 0.1% to 1.1%, February up 0.1% to 0.4%). The momentum going into Q2 is moderately positive in real terms, even with prices up sharply on energy, though continued job gains will be essential to sustain the recovery's momentum.

The personal income breakdown saw wages and salaries growth slow to 0.3% after 2 straight 0.4% gains, a reflection of weakness in wage growth. The upside surprise in personal income came from an above trend rise in government transfers, something which is unlikely to be repeated in the future trend. Spending in nominal terms was led by non-durables but in real terms by services which rebounded from a weak start to the quarter. The recent volatility in service spending looks similar to the picture from utilities output, which is sensitive to weather.

There were no surprises from the price data, with a 2nd straight 0.4% rise in the overall PCE price index and a 0.1% gain in the core, the latter a slowing from 2 straight 0.2% gains with the march rise before rounding being 0.1308%. The yr/yr core PCE pace (unchanged at 0.9%) is still very low and even the overall yr/yr pace of 1.8% versus 1.6% is still acceptably moderate, though we did see yesterday that the Q1 data was quite strong on an annualized basis.

The savings rate was stable at 5.5% but with February revised down from 5.8%. A 0.2% rise in real personal spending is the 11th straight monthly gain while a 0.1% rise in real personal income follows a flat February which was revised up from a 0.1% decline, and a 0.5% January gain that would have been negative were it not for the introduction of a payroll tax holiday. We can be encouraged that real disposable income has been able to avoid declines despite the surges in gasoline prices, though with wages soft and gasoline prices remaining firm gains in Q2 will require continued labor market recovery. Employment data remains as crucial as ever.

MARKET REACTION:

STOCKS: U.S. stock index futures maintain earlier gains.

BONDS: U.S. bond prices maintain slight earlier gains.

FOREX: The dollar holds losses versus euro and yen.

Inflation