U.S. Consumer Sentiment Up Despite Looming Sequester

--Consumers felt better about economy in February

--Sentiment up despite facing higher taxes, gasoline prices, federal spending cuts

--Economists surveyed by Dow Jones had expected no change from preliminary reading

U.S. consumers felt even better about the economy last month than originally thought despite facing higher taxes and prices at the pump, according to a final-February gauge on sentiment released Friday.

The Thomson-Reuters/University of Michigan consumer sentiment index rose to 77.6 from a preliminary reading of 76.3, according to an economist who has seen the report. The index is at its highest level since November.

Economists surveyed by Dow Jones Newswires had expected the final February reading to come in unchanged at 76.3.

"Consumer confidence continued to improve in February due to expected gains in employment," said Richard Curtin, chief economist of the report. "These expected job gains have partially offset concerns about higher payroll taxes and the impending reduction in federal spending."

An $85 billion set of federal spending reductions is due to take effect later Friday unless U.S. lawmakers reach a deal to avoid it. But with no sign of a resolution, some economists worry that the spending cuts will weigh on consumers' confidence in the coming months.

"The nearly 10-point drop in confidence in December to 72.9 was related to uncertainty regarding how Congress and the Administration would handle" a mix of spending cuts and tax increases, warned Terry Sheehan, economic analyst at Stone & McCarthy, referring to the so-called fiscal cliff. "The first hurdle of the tax laws was passed...Now consumers have a new worry, and one that appears harder to fix."

Friday's report also warned that the survey responses showed consumers are still "dismayed about the state of government economic policies." Overall confidence in government economic policies remained near its all-time low, with just 15% who thought the President and Congress were doing a good job, the report said.

For now, fiscal uncertainties don't appear to be rattling consumers' nerves yet. The final-February sentiment reading showed a broad rise across indexes within the report.

The current conditions index increased to 89.0 from a preliminary reading of 88.0. The expectations index rose to 70.2 from 68.7. Each reading stands at its highest level since November.

Despite higher gas prices, the one-year inflation expectations reading stayed steady at 3.3% at the end of February. The inflation expectations covering the next five to 10 years remained at 3.0%.

Write to Cynthia Lin at cynthia.lin@dowjones.com

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