U.S. consumer spending rose more than expected in December to post the sixth straight month of gains as households drew down on their savings to fund purchases, government data showed on Monday.

KEY POINTS: * The Commerce Department said spending increased 0.7 percent after rising by 0.3 percent in November. * Economists polled by Reuters had expected spending, which accounts for about 70 percent of U.S. economic activity, to increase 0.5 percent last month. * The report also showed the Federal Reserve's preferred measure of consumer inflation -- the personal consumption expenditures price index, excluding food and energy -- was unchanged in December after edging up 0.1 percent in November. * In the 12 months through December, the core PCE index rose 0.7 percent, the smallest increase since records began in 1959, after increasing 0.8 percent in November.

COMMENTS:

CARY LEAHEY, MANAGING DIRECTOR, SENIOR ECONOMIST AT DECISION ECONOMICS, NEW YORK:

The personal income numbers are okay. There was a decent gain in wage and salaries in December. The savings rate appears to have dropped a bit which helped Christmas store sales. Going forward it seems the anecdotal evidence suggests better job growth in the first half of this year and at the same time there will be a $120 billion tax cut in the form of that 2 percent payroll tax reduction that was enacted last December. That was the major reason why people upped their growth forecasts for this year in December. The outlook is pretty good, but we have to mind the huge gap between GDP growth and the unemployment rate and it will take a very, very long time for the unemployment rate to catch up.

ANTHONY KARYDAKIS, SENIOR U.S. ECONOMIST, COMMERZBANK AG, NEW YORK:

We had a slightly bigger-than-expected rise in consumption. On the face of it, we could see an upward revision to Q4 GDP, but there are still other missing pieces like exports/imports and business inventories so that may be up for grabs.

What is happening with income points to an upward momentum in consumption and labor conditions.

We are on the verge of a significant upswing in U.S. economic activity in the coming months. We are looking at an economy that will have a materially better year than last year.

MICHELLE MEYER, SENIOR ECONOMIST, BANK OF AMERICA MERRILL LYNCH, NEW YORK:

The spending was quite strong. To me, the question is what is spending is going do in the beginning of the year. It is probably going to slow down. The year-end increase was not off fundamentals because the jobs market while improving is not great; retailers were offering a lot of discounts and credit conditions are still relatively tight. Perhaps part of this gain is pulling consumption from the beginning of this year.

The PCE was the biggest surprise. The core number is flat four out of the last six months. With the year-over-year core PCE at 0.7 percent, it's an uncomfortable level for the Fed. The Fed will prone to be more accommodative than restrictive. It will complete QE2 and keep policy easy this year and into most of next year.

LIAM DALTON, PRESIDENT OF AXIOM CAPITAL MANAGEMENT INC IN NEW YORK, WHICH OVERSEES ABOUT $1.4 BILLION:

The numbers were so in line that they won't have a dominant force on trading today, and you can see that they haven't moved the market, and they won't with so much else going on. We're paying attention to earnings, and then Egypt is a classic out-of-the-blue thing. That has caught a lot of market participants on the wrong foot. We've had a big uptrend since we bottomed last year, and this may contribute to the first break we've had since then. Right now it looks like we've sort of got our bearings on the situation, but if it continues and it disrupts crude or something, that could be another story.

DAVID SLOAN, ECONOMIST, IFR ECONOMICS, A UNIT OF THOMSON REUTERS:

The December personal income and spending report confirmed the Q4 totals seen with the GDP report, showing spending outpacing income. The main news may be the y/y core PCE price index in falling to a new record low of 0.7 percent, highlighting core inflationary pressures remain below levels the Fed would like to see.

MARKET REACTION: STOCKS: U.S. stock index futures hold earlier gains. BONDS: U.S. Treasury bond prices hold steady at lower levels. FOREX: The dollar holds steady at lower levels versus the euro.