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U.S. consumer sentiment sinks in September on interest rate fears

A shopper walks down an aisle in a newly opened Walmart Neighborhood Market in Chicago in this September 21, 2011 file photo. REUTERS/Jim Yo
A shopper walks down an aisle in a newly opened Walmart Neighborhood Market in Chicago in this September 21, 2011 file photo. REUTERS/Jim Yo

NEW YORK (Reuters) - U.S. consumer sentiment fell to a five-month low in September, with Americans worried that higher interest rates will put a damper on the housing market and overall growth, a survey released on Friday showed.

The Thomson Reuters/University of Michigan's preliminary reading on the overall index of consumer sentiment fell to 76.8 in September, the lowest since April. That was below August's 82.1 and the 82.0 reading economists had expected this month.

Survey director Richard Curtin attributed the decline to "growing concerns that higher interest rates will diminish the pace of economic growth as well as job gains."

He added that a "cooling housing market has also affected homeowners' sense of personal financial progress."

Americans' outlook is not much sunnier. A gauge of consumer expectations fell to an eight-month low of 67.2 from 73.7 in August, with only one in four households expecting to be better off financially in the year ahead.

The survey's barometer of current economic conditions fell to a five-month low of 91.8 from 95.2 last month.

Mortgage rates have risen sharply in recent months as markets prepare for the Federal Reserve to reduce the amount of bonds it buys each month to support U.S. recovery. Investors expect the first reduction in the nearly year-old program to be announced at next week's Fed policy meeting.

That has already started to slow a rebound in the housing market, which, thanks to Fed support, had seen a rise in loan demand and prices over the last year. Applications for home loans declined and refinancing activity has slowed sharply.

Consumers were also apprehensive about fiscal policy and another potential battle in Washington over raising the government's legal borrowing limit, the survey showed.

If the trend persists, economists fear it could further depress consumer sentiment and spending. A separate report on Friday showed U.S. retail sales, while up for a fifth straight month, rose less than expected in August.

"If changes in monetary and fiscal policies....act to slow economic growth, declining confidence could lengthen and deepen the slowdown," Curtin said, but said confidence should rebound if these fears prove not to have such a negative effect.

Inflation expectations were slightly higher, with consumers expecting inflation over the next year to be 3.2 percent, up from 3 percent in August. The five-to-10-year inflation outlook rose to 3 percent from 2.9 percent.

(Reporting by Steven C. Johnson; Editing by Chizu Nomiyama)

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