U.S. consumer spending rose slightly more than expected in June, lifted by expenditures on nondurable goods even as incomes saw their biggest drop in four-and-a-half years, a government report showed on Tuesday.

The Commerce Department said spending rose 0.4 percent after a revised 0.1 percent increase in May, 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.

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.

Personal income declined 1.3 percent in June, the biggest decrease since January 2005, the Commerce Department said. This was worse than market expectations for a 1.0 percent drop and reflected the government's one-time payments to social security recipients in May which were not repeated in June.

Real disposable income tumbled 1.8 percent in June, the largest decline since last June, the 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; Editing by Andrea Ricci)

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