Washington, May 16 (Bloomberg) -- U.S. consumer confidence rose this month to the highest in a year as President George W. Bush declared an end to the fighting in Iraq, energy costs fell and stocks climbed.

The University of Michigan's preliminary consumer sentiment index increased to 93.2, the highest since May 2002, from a reading of 86 in April. The index has surged by 15.6 points since March when it slumped to the lowest in a decade in March.

A sustained rise in sentiment may help spur consumer spending in coming months and boost the economy after the weakest six months of growth since the recession ended in 2001. Household spending accounts for more than two-thirds of the U.S. economy.

The rise in confidence is ``suggesting that war-related economic uncertainties continue to diminish, which we think will have a positive impact on consumer spending,'' said John Ryding, chief market economist at Bear, Stearns & Co. in New York.

An increase in spending may benefit companies, which have been offering discounts and incentives to boost demand. Those price cuts have damped corporate earnings and dissuaded companies from investing in new equipment or hiring.

Consumer prices fell in April the most in 18 months due to declining costs of gasoline, motor vehicles and clothes, the Labor Department said in a separate release. The consumer price index fell 0.3 percent last month. Excluding food and energy, prices consumers pay for goods and services rose 1.5 percent in the 12 months that ended in April. That was the smallest increase since 1966.

Expectations

Economists had expected a reading of 87 in the preliminary consumer sentiment index, based on the median of 54 estimates in a Bloomberg News survey. Forecasts ranged from 82 to 93.5. The Michigan index is derived from a telephone survey that will ultimately include 500 households. A final reading is to be issued May 30.

The current conditions index, which reflects Americans' perception of their financial situation and of whether it's a good time to spend on big-ticket items, fell to 94.1 this month from 94.8 in April.

The expectations index, based on optimism about the next one to five years, rose to 92.7, also the highest since May 2002, from 75.7 in March.

``The improvement in consumer sentiment cannot persist indefinitely without support from improving current conditions, but the staying power of the postwar bound in confidence is impressive,'' said Louis Crandall, chief economist at Wrightson- ICAP LLC.

Cheaper Energy

Oil prices are falling as war worries abate. The price of crude oil for June delivery was $28.68 a barrel in trading on the New York Mercantile Exchange. That's down from a 12-year high of $37.83 in mid-March. The Standard & Poor's 500 Index closed yesterday at 944.53, up 18 percent from 800.73 on March 11.

UAL Corp.'s United Airlines and Delta Air Lines Inc. said they will restore flights in June, boosting service for the U.S. summer travel season as demand improves after the war in Iraq.

``We're now seeing the bounce back after the war and that bodes very well for increasing business travel,'' said Barry Sternlicht, chief executive officer of Starwood Hotels & Resorts Worldwide, owner of the Westin and Sheraton chains, said in a Bloomberg Television interview yesterday.

Consumers are benefiting from low interest rates, too. The Mortgage Bankers Association of America raised its forecast for 2003 loan volume 17 percent to $3.02 trillion as low interest rates spur home sales and loan refinancing.

Mortgage Rates

The average 30-year fixed rate dropped to a record low 5.45 percent this week, according to Freddie Mac, the second-biggest buyer of U.S. home mortgages. The rate likely will average 5.8 percent this year, rising to 6.1 percent in 2004, according to Frank Nothaft, Freddie Mac's chief economist.

U.S. sales of existing single-family homes, condominiums and cooperatively owned apartments set a record in the first quarter, rising to 6.68 million at an annual pace from the previous record of 6.59 million in the fourth quarter of 2002.

The pattern of confidence after the first Gulf War provides a cautionary note. The month after that war ended in March 1991, the consumer sentiment index jumped 17.3 points to 87.7, then fell back in subsequent months as the economy kept losing jobs amid a slow recovery from the 1990-1991 recession.

U.S. housing starts declined more than expected in April to the slowest pace in a year, the Commerce Department said.

Builders broke ground on 1.63 million homes at an annual pace last month, down 6.8 percent from the revised 1.748 million-unit clip in March. The pace last month was the slowest since 1.587 million in April 2002.

Last Updated: May 16, 2003 10:41 EDT