U.S. consumer spending rose last month for the first time since February as government stimulus pushed incomes sharply higher, the Commerce Department said on Friday, supporting the view the economy was close to pulling out of recession.

Consumer spending, which accounts for over 70 percent of U.S. economic activity, rose 0.3 percent in May after an upwardly revised flat reading in April, the department said.

Mark Vitner, an economist with Wachovia in Charlotte, North Carolina, said that while consumer spending was likely to drop further for the second quarter as a whole, the data suggested it was on a better trajectory heading into the third quarter.

This confirms our forecast that the economy is going to move into positive territory in the third quarter, he said.

Personal income surged 1.4 percent last month from April as social benefit payments unleashed by the government's massive economic stimulus jumped. April's income gain was revised upward to 0.7 percent from a previously reported gain of 0.5 percent.

The increase in spending was in line with analysts' forecasts, but economists had looked for only a 0.3 percent rise in income. Still, the data had little impact on financial markets.

Inflation-adjusted, after-tax income jumped an even larger 1.6 percent in May, boosted both by tax cuts and payments under the $787 billion stimulus package. Excluding the stimulus package, disposable income rose 0.2 percent, the department said.

The stimulus provided for one-time payments of $250 to people receiving Social Security, supplemental security income and other benefits.

While spending picked up, most of the stimulus money was socked away.

Savings jumped to a record annual rate of $768.8 billion, the highest level since records began in 1959. The saving rate climbed to 6.9 percent, the highest since December 1993.

The personal consumption expenditures price index rose 0.1 percent. A measure of inflation closely watched by the Federal Reserve, the year-on-year personal consumption expenditures index excluding food and energy rose 1.8 percent

(Reporting by Mark Felsenthal; Editing by Theodore d'Afflisio)

Inflation Wachovia