(Adds background, euro reaction, Ifo index, recasts)
By Joelle Diderich
PARIS, July 25 (Reuters) - French consumer spending bounced back from weak levels with a rise of 1.0 percent in June, exceeding economists forecasts for an indicator they see as crucial to economic recovery.
National statistics office INSEE said expenditure by French households was up 2.6 percent year-on-year in June.
"This is a very good figure, especially as it is based on a global rebound in sales in almost all sectors," said Christian Parisot, economist at Aurel Leven.
Economists polled by Reuters had forecast that consumer spending would rise by 0.6 percent in June, for an increase of 2.1 percent year-on-year.
INSEE revised the monthly rise in May to a drop of 1.2 percent, slightly better than the 1.3 percent fall originally announced.
Consumer spending bolstered the euro zone's second largest economy against a sharp drop in foreign demand for its export goods last year.
Parisot said the figures were boosted by high turnover in the first days of the summer sales in retail stores, which began in late June, slightly earlier than the previous year.
However, consumer associations warned this week that recent price increases could hit spending across the board in the autumn, cancelling the impact of the new centre-right government's planned five percent income tax cut in September.
Small shareholders have also been hit by a global stock market rout which has seen shares in state-controlled telephone operator France Telecom nosedive 70 percent this year.
Meanwhile, job prospects remain uncertain with the headline jobless rate, a lagging indicator, expected to rise from its May level of 9.1 percent before posting an improvement.
PRICE HIKE THREAT TO RECOVERY?
Among the price hikes announced in recent days are rises in the price of petrol, telephone fees and railway tickets. Electricity and postage rates are also expected to go up.
INSEE said consumer spending in June was fuelled by sales of clothing and shoes, which jumped 7.7 percent month-on-month.
In anecdotal evidence, retailers noted customers have had six months to adapt to the euro single currency, whose introduction in January kept many confused bargain-hunters away from the winter sales.
Meanwhile, car sales were up 1.4 percent in June from May, while sales of household equipment and furniture fell 2.4 percent, according to INSEE.
The euro shrugged off the data, staying firm against the dollar amid continued doubts over U.S. asset returns and volatile stock markets.
In other euro zone news, Germany's key Ifo business sentiment index fell to 89.8 in July from 91.3 due to a less favourable manufacturing mood, the Munich-based institute said.
LITTLE TAX GAIN
The June figures meant French consumer spending ended the second quarter on a positive note, said Marie-Pierre Ripert, economist at CDC Ixis.
"However, we remain cautious over prospects for the coming months because of the uncertain job market, the fall in company profits and the rise in public service rates," she added.
"The expected impact of the tax reduction on consumer spending in September and October will be cancelled out by these rate increases," she said.
Petrol prices rose this week after the government scrapped compensation measures introduced two years ago to cushion consumers against sharp oil market swings following widespread protests by car owners and trucking companies.
State railway operator SNCF said its rates would rise by an average of 1.8 percent from August 1, after the Paris Metro increased its prices by an average of three percent on July 1.
France Telecom's basic telephone line subscription rate went up by 3.6 percent and officials are expected to announce a 2-3 percent rise in electricity prices later on Thursday.
"The problem is that the income tax reduction benefits essentially high-income households whereas rate increases affect everybody," said Stephane Deo, economist at UBS Warburg, reflecting criticism by the opposition Socialists.
Meanwhile, the outlook from companies, many of which were reporting second quarter results this week, remains mixed.
French telecoms equipment maker Alcatel on Thursday posted a narrower-than-expected operating loss of 177 million euros, but said there was no sign yet of a market recovery in the second half of the year.
"Alcatel expects markets to stay depressed in the second half of 2002, with no sign of recovery in view," CEO Serge Tchuruk said in a statement.