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Consumer prices rose the most in 10 months in February as the cost of gasoline spiked, but there was little sign that underlying inflation pressures were building up.

Surging gasoline prices put a small dent in consumer confidence early this month, other data showed on Friday. Still, Americans do not believe the sharp run up in prices will last.

The Labor Department said the Consumer Price Index rose 0.4 percent in February after advancing 0.2 percent in January. Gasoline accounted for more than 80 percent of the rise.

Stripping out volatile food and energy costs, the so-called core CPI edged up just 0.1 percent.

“Consumer purchasing power, at least for the next few months, is going to remain pressured by rising gasoline prices,” said Sam Bullard, a senior economist at Well Fargo Securities in Charlotte, North Carolina. However, he said a trend toward lower inflation was still in place.

Consumer prices rose 2.9 percent last month from a year-ago, unchanged from January but down from a peak of 3.9 percent in September. The core index was up 2.2 percent over the 12 months through February, down from 2.3 percent in January.

The Federal Reserve said on Tuesday the recent spike in energy costs would likely lift inflation only temporarily. Over a longer horizon, it said inflation was poised to run at or below its 2 percent target.

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Graphic - consumer prices: link.reuters.com/cam27s

Graphic - core CPI: link.reuters.com/mam27s

Graphic - industrial output: link.reuters.com/fem27s

Graphic - consumer sentiment: link.reuters.com/xem27s

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GASOLINE HURTS SENTIMENT

Gasoline prices have increased 53 cents since the start of the year to an average of $3.88 a gallon in the week to Monday.

That helped pull the Thomson Reuters/University of Michigan index on consumer sentiment down to 74.3 early this month from 75.3 in February.

Consumer expectations for inflation one year ahead jumped to 4 percent from 3.3 percent, but the five-year reading rose only slightly to 3 percent and the survey’s director said Americans do not expect the steep climb in gasoline costs to last.

“Overall, the data indicate that $4 gasoline has lost its shock value, although the drain on discretionary income will still affect spending, mostly among lower-income households,” survey director Richard Curtin said.

Inflation expectations among investors, as signaled by spreads in the bond market, have also been on the rise, supported by a stream of relatively upbeat economic data. However, they fell back a bit after the CPI report.

Tensions over Iran’s nuclear program have kept alive fears of oil supply disruptions and have pushed prices higher.

With gasoline weighing on the economy’s recovery, President Barack Obama, who faces re-election in November, has been considering tapping strategic oil stocks to ease the price pressure.

Other data on Friday showed the economy continues to expand moderately. Production at the nation’s mines, factories and utilities held steady last month after a 0.4 percent gain in January, the Fed said.

Manufacturing output rose 0.3 percent, even as automakers cut production by 1.1 percent after two big monthly gains. Carmakers had raised production to meet pent up demand for popular models in short supply.

“While higher energy prices and the euro zone recession are headwinds for manufacturers, an expanding U.S. economy, propelled by strengthening job market gains, should keep factory activity strong this year,” said Paul Edelstein, an economist at IHS Global Insight in Lexington, Massachusetts.

INFLATION OUT PACES WAGES

Stocks on Wall Street were little changed after hefty gains this week. Prices for U.S. Treasury debt fell, while the dollar weakened broadly.

The CPI report showed gasoline prices soared 6 percent last month, the largest increase since December 2010. They had risen 0.9 percent in January. While the strengthening jobs market is providing some cushion against rising gas prices at the pump, salaries are not keeping up.

Average weekly earnings, adjusted for inflation, fell 0.3 percent last month after slipping 0.1 percent in January, the Labor Department said. Compared with February last year, weekly earnings were down 0.4 percent.

But there was some price relief for households. Food costs held steady in February, marking the first time in 1-1/2 years they had not risen, and apparel prices dropped by the most since July 2006.

There were also declines in the prices of tobacco, airline tickets and used cars and trucks. Recreation costs also fell. But new motor vehicle prices recorded their first increase in nine months, reflecting rising domestic demand for autos.

A measure of the amount homeowners would pay to rent or would earn from renting their property - one of the largest single components of the CPI - rose at the slowest pace since April. Rents have risen as Americans have moved away from ownership in the face of persistent declines in house prices.

“The downward trajectory for consumer price inflation remains largely intact,” said Millan Mulraine, a senior macro strategist at TD Securities in New York.

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Japanese Finance Minister Jun Azumi said his nation

The pace of growth in the U.S. services sector accelerated in January to its highest level in nearly a year as new orders and employment jumped, an industry report showed on Friday.

The Institute for Supply Management said its services index rose to 56.8 last month from a revised 53.0 in December. It was the highest level since February 2011.

Economists had expected the index to hold steady at 53.0, according to a Reuters survey. A reading above 50 indicates expansion in the sector.

U.S. stocks rose 1 percent heading into the data, while Treasuries yields hit session highs following its release and the euro extended losses against the dollar.

The new orders index climbed to 59.4 from 54.6, though the prices paid measure edged up to 63.5 from 62.0

Employment in the vast services sector was robust, rising to the highest level in six years at 57.4 from 49.8 and adding to signals of improvement in the labor market. The sector accounts for more than two-thirds of economic activity in the United States Business Card Holders.

The overall U.S. unemployment rate fell to close to a three-year low in January, separate data showed earlier on Friday, as the economy created jobs at the fastest pace in nine months.

Anticipation for a third round of stimulus, or quantitative easing, from the Federal Reserve had picked up after the Fed left the door open to more stimulus at its most recent meeting, the jobs report muted those expectations.

Economic growth is expected to back off in early 2012 from the 2.8 percent rate of growth in the fourth quarter, though there are signs of underlying momentum.

Global service sector data on Friday was more mixed and showed Europe’s economy probably picked up last month, while growth in Chinese service firms slowed sharply.

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Japan’s industrial production rebounded 4 percent in December from November and household spending increased for a second month, suggesting the still-weak economy is gaining some steam after last year’s tsunami disaster and flooding in Thailand that disrupted manufacturers’ supply chains.

Output of automobiles, cell phones and semiconductors drove the gains last month after production fell 2.7 percent in November. Manufacturers project further production increases in January and February, the Ministry of Economy, Trade and Industry said Tuesday.

But Japan’s unemployment rate edged up to 4.6 percent and Junko Nishioka, economist at RBS Japan Securities, cautioned that the economic outlook was “mixed.”

While she was heartened by the 0.5 percent uptick in family spending, Nishioka said prospects for Japan’s vital manufacturing sector remained tentative amid weak export demand short term personal loans.

“The pace of recovery will be slow,” she said. “So far, we’re seeing some recovery in the auto sector and electronic components, but still it’s still not enough to compensate for the gap recorded after the March disaster and the Thai flooding.”

The factory data showed that shipments grew 4.5 percent and inventories fell 2.9 percent, both healthy indicators. Broadly speaking, production was led by strength in the electronics, automobile and general machinery sectors, the report showed.

Looking ahead, manufacturers predicted that industrial output would rise 2.5 percent in January and another 1.2 percent in February, according to a METI survey.

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An Iraqi police official says gunmen have attacked the house of a police officer near the northern oil-rich city of Kirkuk, killing one of his guards.

Kirkuk’s police commander Brig. Gen. Sarhad Qadir says the officer was unharmed in Saturday’s attack in the predominantly Sunni town of Hawija, a former insurgent stronghold located 150 miles (240 kilometers) north of Baghdad.

Suspected Sunni insurgents have frequently targeted Iraqi security forces to undermine the confidence in the Shiite-dominated government and its efforts to protect people from violence without American backup payday loans in one hour.

Attacks have surged amid an escalating political crisis in Iraq. At least 160 people have been killed since the beginning of the year, raising fears of civil war a month after U.S. soldiers left.

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Investors added about $1 billion to U.S. municipal bond mutual funds in the week that ended Dec. 7, the most since March 2010, as 10-year benchmark yields fell to the lowest since September.

The funds have attracted about $3 billion since mid-October, according to Lipper US Fund Flows data. Yields on top-rated 10-year municipals fell to 2.005 Thursday, from a two-month high of about 2.58 percent on Oct. 13, according to Bloomberg Valuation data. Thursday’s benchmark tax-free yield was just above the 2.003 percent interest rate on Sept. 23, the lowest since the index began in January 2009.

Investors are adding cash to municipal funds to tap into the rally in the $3.7 trillion market and to boost assets they deem relatively safe before month-end, said Matt Fabian, managing director of Concord, Mass.-based Municipal Market Advisors, in a telephone interview.

“It’s probably partly the rally and partly just allocations into year-end, getting portfolios ready for year-end to show a larger allocation of fixed income,” Fabian said.

Net additions in the past couple of months are a reversal from earlier in the year. Investors pulled more than $30 billion out of the funds from November 2010 to June as lingering strains from the recession fueled speculation that municipal defaults would jump.

In contrast with the decline in 10-year yields, interest rates on top-rated tax-exempts maturing in 30 years increased in the past two months to 3.85 percent Thursday, according to Bloomberg data. A basis point is 0.01 percentage point.

The yield on the longer-maturity index was 185 basis points above that on the 10-year gauge yesterday, the widest gap since at least January 2001, when the Bloomberg Valuation data began.

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A series of blasts in central Iraq apparently targeting street vendors and day laborers killed 10 people on Saturday, police officials said.

The first two bombs were planted in the early morning in a spot where day laborers gather in the mostly Sunni village of al-Zaidan, near the town of Abu Ghraib west of Baghdad. They killed seven people and wounded 11 others, the officials said.

Hours later, three bombs exploded near the kiosks of vendors selling CDs and military uniforms in central Baghdad, killing three people and wounding eight others.

Health officials at Abu Ghraib’s general hospital and at Ibin al-Nafis hospital in Baghdad confirmed the casualty figures. All officials spoke on condition of anonymity because they w not authorized to release the information.

Violence has ebbed across Iraq, but deadly bombings and shootings still occur almost daily as U.S. troops prepare to leave by the end of the year.

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Germany’s unemployment rate slipped to 6.5 percent in October, an improvement credited to seasonal factors.

The Federal Labor Agency said Wednesday that 2.737 million people were registered as jobless in Europe’s biggest economy last month _ 59,000 fewer than the previous month. The unadjusted jobless rate was down from 6.6 percent in October.

However, the agency says that the seasonally adjusted jobless rate ticked up to 7 percent from 6.9 percent. In adjusted terms, the number of unemployed people increased by 10,000 following months of declines.

Germany’s economic growth has been losing steam lately amid clouds over the global economy and the eurozone debt crisis.

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Nixon touts trade deal