Jan. 21 (Bloomberg) -- U.S. consumer confidence unexpectedly fell in early January, the first drop in three months, as stocks declined and oil prices crept up, a report today showed.

The University of Michigan's preliminary index of consumer sentiment slipped to 95.8 for the month from 97.1 in December, as expectations for the future dimmed. The assessment of present conditions rose to a four-year high.

Lower stock values and a rebound in the price of crude oil ``may have damped sentiment a bit,'' said Michael Englund, chief economist at Action Economics LLC in Boulder, Colorado, who forecast a 96. ``Current levels of sentiment are still solid, and such strength has tended to correspond with solid rates of consumption growth.''

January's reading in the general index exceeds the 88.1 average since a monthly version began in 1978. The index averaged 95.2 last year.

The Standard & Poor's 500 Index today was down 2.8 percent from the start of the year and headed for its worst January since 2000. The Nasdaq Composite Index lost 5.6 percent. The price of crude oil rose this month amid production cuts, freezing weather and concern about unrest tied to Iraqi elections.

Current conditions and expectations shape the general index. The current index, which reflects Americans' perception of their financial situation and whether it's a good time to buy big-ticket items, rose to 110.4, the highest since December 2000, from 106.7 in December. The expectations index, based on optimism about the next one to five years, decreased to 86.4 from 90.9.

Forecast

The report was ``kind of a mixed bag,'' said Stephen Stanley, chief economist at RBS Greenwich Capital in Greenwich, Connecticut. ``The current levels of sentiment are certainly not an impediment to robust advances in actual outlays,'' he said.

The median forecast of 61 economists surveyed by Bloomberg News called for the Michigan index to rise to 97.5. Forecasts ranged from a low of 94 to a high of 102.5.

The dollar fell against the euro after the report, with a euro bringing $1.3038 as of 11:59 a.m. in New York, compared with $1.2963 yesterday. The 4 1/4 percent Treasury note maturing in November 2014 rose 1/16, pushing the yield down to 4.15 percent from yesterday's 4.16 percent.

The economy also may not be adding enough jobs fast enough to kindle widespread optimism. ``For sentiment to break out of its recent range, sustained and substantial gains in jobs are needed,'' said Steven A. Wood, president of Insight Economics LLC in Danville, California.

Jobs and Confidence

The average increase in non-farm payrolls last year of about 185,000 jobs a month ``is not a fantastic performance,'' Janet Yellen, president of the Federal Reserve Bank of San Francisco, said yesterday. Even so, she said, the U.S. economy is in a ``self- sustaining expansion'' and the labor market ``is finally firming up.''

The preliminary index is based on a phone survey of about 300 households. The final report for the month, due Feb. 4, will reflect about 500 responses.

The level of confidence itself may not influence spending. Confidence does reflect changes in economic conditions, including employment and income, that influence purchases.

Growth in consumer spending should ``remain healthy,'' William Poole, president of the Fed Bank of St. Louis, said in a speech yesterday.

Consumers and Companies

Sallie L. Krawcheck, chief financial officer at Citigroup Inc., said the expanding economy is leading to an increase in the amount of good credit.

The world's biggest financial services company is witnessing ``what we view to be a very responsible consumer behavior,'' she said, noting that payment rates on credit cards are moving toward all-time highs.

The New York-based company yesterday said earnings rose 12 percent to a record $5.32 billion.

``On average, consumer balance sheets are in pretty good shape,'' Gary Stern, president of the Federal Reserve Bank of Minneapolis, said in a speech today in Marquette, Michigan.

Fortune Brands Inc., the Lincolnshire, Illinois, company whose products include Jim Beam whiskey, Moen faucets and Titleist golf balls, said today its fourth-quarter earnings rose to $250 million from $156.9 million a year earlier.

``We saw robust consumer demand throughout the year, and we grew faster than our markets,'' Norman H. Wesley, chairman and chief executive officer, said in a statement.

Rate Forecasts

Central bankers are expected to raise the target for their benchmark interest rate by a quarter percentage point on Feb. 2 in an effort to prevent inflation from flaring. The increase would be the sixth by that amount in as many meetings and bring the target to 2.5 percent.

Consumer spending probably rose at a 4.6 percent annual rate from October through December after a 5.1 percent gain the previous three months, according to a forecast by economists at UBS Securities LLC in Stamford, Connecticut. If the estimate is accurate, the back-to-back gains would be strongest since the six months ended in March 2000.

Such spending, which accounts for about 70 percent of the economy, may grow 3.3 percent this year after expanding 3.8 percent in 2004, according to UBS Securities. It rose an average 3.7 percent in decade that ended with 2003.

To contact the reporter on this story: Carlos Torres in Washington ctorres2@bloomberg.net; Joe Richter in Washington at jrichter1@bloomberg.net.

Last Updated: January 21, 2005 12:07 EST