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The Commerce Department said on Friday consumer spending increased 0.4 percent, rising for a 10th straight month, after a 0.5 percent gain in March. It also said annual inflation rose at its fastest pace in 12 months.

Economists polled by Reuters had expected spending, which accounts for about 70 percent of U.S. economic activity, to rise 0.5 percent last month.

When adjusted for inflation, spending nudged up 0.1 percent last month after gaining 0.1 percent in March.

"This shows that the trend going in the second quarter is weaker than what people had thought. This promotes caution about projecting faster growth in the second quarter," said Pierre Ellis, a senior global economist at Decision Economics in New York.

Consumer spending rose at a 2.2 percent annual rate in the first quarter, braking sharply from a 4 percent pace in the October-December period. That contributed to holding back growth to a 1.8 percent pace during the quarter.

But a recent cooling in gasoline prices should ease some of the pressure on households and boost spending in the months ahead.

The national price for regular unleaded gasoline prices slipped to $3.90 a gallon in the week through Monday, according to the Energy Information Administration, after peaking just above $4 a gallon early in the month.

Government bond prices extended losses on the data, while stock index futures were little changed.

High food and energy prices in April kept inflation elevated last month, with the personal consumption expenditures price (PCE) index rising 0.3 percent after advancing 0.4 percent in March.

Compared to April last year, the index was up 2.2 percent, the biggest rise in a year, after increasing 1.8 percent in March.

The core PCE index -- excluding food and energy - increased 0.2 percent on month after rising 0.1 percent in March.

The core index, which is closely watched by Federal Reserve officials, increased 1.0 percent in the 12 months through April, the largest gain since September. The index rose 0.9 percent year-on-year in March and the Fed would like to see it closer to 2 percent.

Incomes rose 0.4 percent last month, in line with expectations and after a 0.4 percent increase in March. Disposable incomes adjusted for inflation were flat and savings fell to an annual rate of $570.6 billion, the lowest since August 2009, from $576.7 billion in March.

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

This has been a choppy week for equities, with steep losses early offset by a rally in the past two days. The S&P 500 is down 0.6 percent for the week. Trading volume could be anemic on Friday ahead of Monday's Memorial Day holiday.

The losses early in the week came on worries about euro-zone sovereign debt, as well as concerns that global demand was slowing. While there are few catalysts seen for strong positive advances, technical support suggests there is a floor for stocks.

The Group of Eight leaders agreed on Friday that the global economic recovery was becoming more "self-sustained," though higher commodity prices were hampering further growth.

"Stocks are sitting on a well-balanced seesaw right now and there's not much that will make us go one way or the other," said Christian Wagner, chief executive officer at Longview Capital Management in Wilmington, Delaware.

"The G8 news was good, and we're sitting on major support levels, but people are always cautious going into a long weekend."

April pending home sales will be released at 10 a.m. (1400 GMT). Economists see a 1 percent decline compared with a 5.1 percent increase in the previous month. The final May Thomson Reuters/University of Michigan Surveys of Consumers is seen essentially holding steady from the preliminary May level.

Personal income and consumption data will be released earlier on Friday.

S&P 500 futures rose 0.8 point and were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures fell 4 points and Nasdaq 100 futures rose 0.5 point.

EBay (EBAY.O) and its online payment unit, PayPal Inc, on Thursday sued Google Inc (GOOG.O) and two executives, claiming they stole trade secrets.

Google, MasterCard (MA.N), Citigroup (C.N), Sprint (S.N) and transaction processing company First Data unveiled a system that will allow shoppers to use mobile phones to pay for items at the checkout counter.

Macau casino operator MGM China raised $1.5 billion from its Hong Kong initial public offering after pricing it at the top of its indicated range. The firm is co-owned by MGM Resorts International (MGM.N), shares of which rose 1 percent to $15.88 in light premarket trading.

The $7.1 billion merger of coal miners Massey Energy Co (MEE.N) and Alpha Natural Resources Inc (ANR.N) should be blocked or Massey's board will avoid responsibility for their reckless management, a shareholder attorney told a court late Thursday.

(Editing by Kenneth Barry)

(This article has been modified to correct the reference to the previous sentiment figure in paragraph 7)

Noting the chunky gains in Asian stocks, European stock index futures pointed to early gains while the S&P e-mini futures rose 0.1 percent, suggesting a higher start on Wall Street later in the day. .N

While the euro enjoyed a brief respite versus the U.S. dollar due to thinning yield differentials, it plumbed to a record low against the Swiss franc in a sign that traders remain focused on the rapidly escalating situation in the euro zone.

Jean-Claude Juncker, the head of euro zone finance ministers rattled markets when he said the International Monetary Fund could withhold the next slice of aid to Greece due next month, raising the specter of default, though his spokesman later softened some of his comments.

While markets have been under pressure in recent weeks due to a steady stream of bad news from the euro zone, Asian stocks and bonds have held up fairly well as recent data prints and positioning comforted investors on the region's growth outlook.

Korea .KS11 was among the top gainers as foreign investors trooped back, snapping a long selling streak. Solid current account surplus numbers in April too played its part.

Stocks outside Japan were up 0.7 percent on Friday even though the index is set for a fifth consecutive week of losses -- its longest string of losses since October 2008.

"Downside risks for large caps are capped by its increasingly attractive valuations," said Wang Aochao, an analyst with UOB Kay Hian in Shanghai. "So with small caps looking overvalued, it looks like investors will continue to switch out of them and into large caps in the near term."

Japanese shares were among the exceptions to the gainers, with the benchmark Nikkei average .N225 down 0.42 percent and the Topix index .TOPX down 0.3 percent on the day.

While concerns of a Greek restructuring kept investors cautious about adding big positions in stocks, they had no such qualms toward fixed-income assets as Asian policymakers stepped up their battle to fight inflation by tightening policy.

Latest data from Thomson Reuters Lipper showed net inflows of $94 million into high yield funds and a $1 billion inflow into corporate investment grade funds in the week of May 25.

DESPERATELY SEEKING CONFIDENCE

In currency markets, the euro turned higher after its drop this week stalled right near its 100-day moving average and also the bottom of the cloud on daily Ichimoku charts, a form of Japanese technical analysis popular among market players.

Still, it is expected to stay within recent established trading ranges until confidence is restored on the Greek debt crisis and the market refocuses on the outlook for euro zone interest rates, which would be supportive for the single currency, Brown Brothers Harriman strategists said in a note.

For now though, the double whammy of weak U.S. economic data and falling U.S. Treasury yields offered support to the euro.

In another sign that the U.S. economy has hit a soft patch, jobless claims for last week unexpectedly rose while annual GDP growth came in lower than analysts had expected.

The weak data took the wind out of commodity markets, particularly oil, which dropped more than 1 percent overnight, but recovered to hold above the $100 per barrel line.

In bond markets, U.S. Treasuries rallied and benchmark yields fell to new six-month lows with ten-year note yields breaking below their 200-day moving average. They were last at 3.06 percent, their lowest level since early December.

Other safe-haven assets like gold and silver received a boost from the Greece situation. Silver recovered after falling in the previous session while gold inched higher.

In a communique to be issued at the end of a two-day summit in France, a copy of which was obtained by Reuters, European nations, the United States and Japan all agreed to ensure their public finances were sustainable.

"The global recovery is gaining strength and is becoming more self-sustained. However, downside risks remain, and internal and external imbalances are still a concern," the communique said.

"The sharp increase in commodity prices and their excessive volatility pose a significant headwind to the recovery. In this context, we agreed to remain focused on the action required to enhance the sustainability of public finances, to strengthen the recovery and foster employment, to reduce risks and ensure strong, sustainable and balanced growth, including through structural reforms.

"Europe has adopted a broad package of measures to deal with the sovereign debt crisis faced by a few countries, and it will continue to address the situation with determination and to pursue rigorous fiscal consolidation alongside structural reforms to support growth.

"The United States will put in place a clear and credible medium-term fiscal consolidation framework, consistent with considerations of job creation and economic growth.

"In Japan, while providing resources for the reconstruction after the disaster, the authorities will also address the issue of sustainability of public finances."

(Reporting by Luke Baker, editing by Alastair Macdonald)