updated 12/22/2006 11:39:09 AM ET 2006-12-22T16:39:09

U.S. consumer sentiment slipped in December but was not far from the year's highs, a report said on Friday, suggesting Americans were guardedly optimistic about the economy in the holiday season.

Major Market Indices

The University of Michigan said its consumer sentiment index declined to 91.7 in December from 92.1 in November. The drop was less severe than expected on Wall Street, where the median forecast in a Reuters poll called for a reading of 90.2.

A measure of current conditions edged up on the month, but expectations about the future deteriorated. Price expectations over a one-year period, an important guidepost for interest rate policy, dipped to 2.9 percent, its lowest since February 2005. That index was at 3.0 percent in November.

Analysts said the data should provide further encouragement to the Federal Reserve that it may be able to start cutting interest rates sometime over the next two quarters, especially if incoming economic reports continue to show weakness.

Another release on Friday showed that a closely watched barometer of consumer costs eased in November.

"The inflation readings show contained inflation expectations, as the Fed has been hoping for," said Pierre Ellis, senior economist at Decision Economics.

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