U.S. consumer spending rose at the strongest pace in four months in July, supported by a small gain in incomes that offered hope consumers will be able to keep contributing to a modest recovery.

The Commerce Department said on Monday spending increased 0.4 percent, the largest gain since March, after being unchanged in June. Analysts polled by Reuters had expected consumer spending to rise 0.3 percent.

On the real wage side, you had a good bump that's a sign that income is recovering from the recession. On the spending side, the quarter is off to a solid start, said John Canally, an economist at LPL Financial in Boston.

U.S. stock index futures edged up after the data and Treasury debt prices were steady at higher levels. The U.S. dollar showed losses against the yen but rose against the euro.

The income and spending report was a relief after a raft of weak data for July that had fuelled fears economic growth might continue to slow during in the third quarter.

The government on Friday lowered second-quarter gross domestic product growth estimates to a 1.6 percent annual rate from 2.4 percent.

Consumer spending, which normally accounts for 70 percent of U.S. economic activity, is being dampened by stubbornly high unemployment. Friday's GDP report showed spending increased at a 2.0 percent rate in the second quarter, up from an earlier estimate of 1.6 percent.

The Commerce Department said spending adjusted for inflation increased 0.2 percent last month after edging up 0.1 percent in June. Real spending on goods rebounded 0.4 percent, while expenditure on services increased 0.2 percent.

Personal income increased 0.2 percent last month after being unchanged in June. Markets had expected income to rise 0.3 percent in July.

Wages and salaries rose at a $22 billion (14 billion pounds) annual rate during July after shrinking at an $8 billion rate in June.

But real disposable income fell 0.1 percent, the first decline since January, following June's 0.1 percent gain.

The savings rate slipped to 5.9 percent from 6.2 percent the previous month. Savings fell to an annual rate of $673.4 billion.

Inflation did not appear to be a problem.

The report showed the personal consumption expenditures price index, excluding food and energy, was up 1.4 percent in the 12 months to July, unchanged from June. The index is a key inflation measure monitored by the Federal Reserve.

(Reporting by Lucia Mutikani; Additional reporting by Richard Leong in New York; Editing by Andrea Ricci)