UPDATE 1-French consumer morale in doldrums, unemployment bites

* Surging unemployment weighing on consumer sentiment

* Consumer morale falls more than expected in March

(Adds details, quotes from labour minister, S&P)

By Leigh Thomas

PARIS, March 26 (Reuters) - French consumer morale weakened more than expected in March as surging unemployment cast a cloud over the outlook for the euro zone's second-biggest economy, data showed on Tuesday.

The INSEE statistics agency's confidence survey, which landed hours before March jobless data is expected to show a new record, found worries about unemployment were at their highest level since July 2009, when France was emerging from its worst recession in decades.

INSEE's consumer morale index fell to 84 from 86 in February, its lowest level since November and slipping further away from a long-term average of 100.

A Reuters poll had forecast a reading of 85.

With the economy posting barely any growth since the first quarter of 2011, unemployment has climbed steadily to its highest level in more than 13 years, affecting 10.6 percent of the workforce in the final quarter of last year.

Consumers, the traditional motor of the French economy, are bracing for tougher times, spooked by almost daily news about factory closures and layoffs.

This week, Lyon-based chemicals firm Kem One, said it was poised to file for bankruptcy, putting up to 1,300 jobs on the line just nine months after a new owner took over the firm.

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Consumer morale graphic: Joblessness graphic: Full table of consumer confidence data: ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> GRIM OUTLOOK

Labour Minister Michel Sapin played down expectations that monthly jobless claims due at 6 p.m. (1700 GMT) would show a new all-time high. "It's not the absolute number that counts," he told journalists. "It's the percentage of people in work."

The government is in the process of revising down its 2013 growth forecast from 0.8 percent, but most private economists say France will be lucky to post any growth this year.

Ratings agency Standard & Poor's, which stripped France of its triple-A status last year, forecast on Tuesday that the French economy would contract 0.2 percent this year with neither consumers nor business in a position to drive a recovery.

"Unless French export product growth picks up significantly, the French economy is likely to remain in a no-growth mode in 2013 and for the best part of 2014," S&P said in a report.

"In view of recent trends, such an increase in exports seems unlikely, in our opinion," it added.

INSEE's survey found that consumers were their most pessimistic ever about the general outlook and were increasingly set to save rather than spend, boding ill for future household spending.

Weak demand in the economy has dampened inflationary pressures. Consumer price inflation eased in February to 1.2 percent, the lowest annual rate in more than three years.

Tuesday's survey found that while consumers felt less of a pinch from rising prices, their concerns about future inflation had risen.

(Reporting by Leigh Thomas; Editing by Susan Fenton)

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Keywords: FRANCE ECONOMY/