Sept. 12 (Bloomberg) -- Confidence among U.S. consumers rose the most in more than four years as a decline in gasoline prices provided relief from rising unemployment and tumbling home values.

The Reuters/University of Michigan preliminary index of consumer sentiment increased to 73.1 this month, the biggest increase since January 2004, from 63 in August. The measure averaged 85.6 in 2007.

Cheaper gasoline may prevent consumer spending from collapsing under the weight of mounting job losses and mortgage foreclosures. A government report earlier today showed retail sales unexpectedly dropped in August as the spending boost from tax rebates faded.

``Consumers have gained some confidence now that gasoline prices at the pump have fallen,'' said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. ``The economy may not be turning the corner yet, but if consumer spending follows the improvement in sentiment, the economy may be getting a badly needed shot in the arm.''

Americans expect inflation to subside, the report showed. Prices will rise 3.6 percent in the coming 12 months, respondents to the survey said, compared with a 4.8 percent increase predicted a month ago.

The decline in gasoline prices from a record $4.11 in July is easing the strain on household budgets and leaving consumers more to spend on other goods. The average price of regular gasoline fell to $3.67 a gallon this week from an average $3.76 in August, according to AAA.

Economists' Forecasts

Economists had forecast the confidence index would rise to 64, according to the median of 67 projections in a Bloomberg News survey. Estimates ranged from 61 to 67.

The Commerce Department earlier today reported retail sales in August fell 0.3 percent, compared with a revised 0.5 percent decline the prior month. Not including autos, sales dropped 0.7 percent.

Another report today from the Labor Department said prices paid to U.S. producers fell 0.9 percent in August, the first decline this year. Falling energy prices are leading the declines.

The Michigan survey's index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, rose to 70.9 from 57.9 in the prior month.

A gauge of current conditions, which reflects Americans' perceptions of their financial situation and whether it is a good time to buy cars and other big-ticket items, climbed to 76.5 from 71.

Car Sales Rise

Car sales rose in August from the prior month's weakest pace since 1992, according to industry figures. The annual selling rate in the U.S. last month was 13.7 million, compared with 12.5 million the prior quarter, according to Autodata Corp. in Woodcliff Lake, New Jersey.

Auto executives aren't optimistic.

``Maybe toward the end of '09, going into 2010, there'll start to be some signs of recovery,'' Chrysler LLC Vice Chairman Jim Press said in an interview last week in Los Angeles. He said consumers' difficulty getting credit is a bigger threat to sales than high gasoline prices.

Consumers remain rattled by job losses that so far this year have totaled 605,000 and an unemployment rate, at 6.1 percent in August, that's the highest in five years.

The preliminary Reuters/University of Michigan consumer confidence report reflects about 300 responses, compared with 500 households for the final survey published at the end of the month.

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

Last Updated: September 12, 2008 10:57 EDT