Aug. 7 (Bloomberg) -- Consumer borrowing unexpectedly accelerated in June as Americans used credit cards to finance more of their purchases, a Federal Reserve report showed today.

Consumer credit, or non-mortgage loans to individuals, rose $10.3 billion to $2.19 trillion following a revised $5.89 billion increase in May. The two-month gain was the biggest since September-October 2004.

Americans are relying more on credit-card debt because rising interest rates and a cooling housing market make it harder for them to take out home-equity loans. Higher prices at filling stations are also prompting consumers to borrow more, economists said.

``The jump in consumer credit coming at a time when consumers are hard hit by soaring gasoline costs could indicate some financial woes on the part of borrowers,'' said Chris Rupkey, an economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. ``It looks as if consumers are relying more on credit cards now that other avenues of credit such as mortgage refinancing have been shut off to them.''

Consumer credit was expected to rise $3.6 billion in June following an originally reported $4.4 billion increase in May, according to the median forecast in a Bloomberg News survey of 36 economists.

Revolving debt, such as credit cards, rose by $6.65 billion in June after rising $7.42 billion, today's report showed. Non- revolving debt, such as loans to buy cars and mobile-homes, rose by $3.62 billion in June after declining $1.54 billion a month earlier. Overall consumer debt rose at an annual rate of 5.7 percent in June.

Interest Rates

The Fed's campaign to quash inflation has driven up the cost of credit-card borrowing. The average rate on a credit card increased to 13.14 percent in May 2006 from 12.76 percent a year earlier, according to Federal Reserve statistics.

Fed policy makers, who meet tomorrow, will probably leave their benchmark interest rate at 5.25 percent, according to a Bloomberg News survey of economists, as they pause to assess the impact of past increases on the economy.

The economy expanded at a 2.5 percent annual pace in the second quarter, down from growth of 5.6 percent in the previous three months, as consumers put the brakes on spending.

A gain in sales of motor vehicles may have contributed to the increase in non-revolving debt. Automakers sold cars and light trucks at an annual rate of 16.3 million units on June, compared with 16.1 million in May, according to Bloomberg data.

Housing Market

A cooling housing market is reducing demand for home-equity loans. Sales of existing homes, which make up 85 percent of the market, fell 1.3 percent in June to the lowest level in five months.

The Mortgage Bankers Association's index of applications to buy a home or refinance an existing loan dropped 1.2 percent in the last week of July to the lowest level in more than four years.

Instead, consumers are turning to credit card debt. American Express Co., Bank of America Corp., JPMorgan Chase & Co. and Citigroup all reported higher second-quarter profit from credit cards, partly because a new law making it harder for Americans to file for bankruptcy protection led to fewer defaults.

Retail sales slipped 0.1 percent in June, marking the first decline since February, a Commerce Department report showed last month. Retail sales account for almost half of consumer spending, which in turn represents about 70 percent of the economy.

``The outlook is probably for continued weakness on the consumer side,'' said Patrick Fearon, an economist at A.G. Edwards & Sons Inc. in St. Louis. ``The weaker housing market means there's less opportunity to use home equity.''

A slowing job market may curb consumer borrowing and spending. U.S. employers added fewer jobs than forecast in July and the unemployment rate rose to 4.8 percent from 4.6 percent, a Labor department report showed last week.

To contact the reporter on this story: Vincent Del Giudice in Washington vdelgiudice@bloomberg.net.

Last Updated: August 7, 2006 16:27 EDT