* Consumer sentiment highest in five years
* Producer prices gain but inflation pressure muted
* U.S. stocks edge higher
By Edward Krudy
NEW YORK, Oct 12 (Reuters) - U.S. consumer sentimentunexpectedly rose to its highest level in five years in Octoberas consumers became more optimistic about the overall economy ina possible boost to President Obama's reelection hopes nextmonth.
The Thomson Reuters/University of Michigan's preliminaryOctober reading on the overall index on consumer sentiment camein at 83.1, up from 78.3 the month before, and the highest sinceSeptember 2007, the survey showed on Friday.
It was well above the median forecast for a slight declineto 78 among economists polled by Reuters.
The new buoyancy among consumers comes shortly after theU.S. unemployment rate tumbled to its lowest level in nearlyfour years in September as more people returned to the workforceand found jobs than economist had predicted.
"We are getting some quite interesting signals from consumersentiment and employment data - both (the) unemployment rate andinitial claims - that there has been some quite significantimprovement in the economy," said David Sloan, an economist at4Cast in New York.
U.S. stocks were higher after the news. The S&P 500climbed 0.2 percent in morning trade but pared some of itsearlier gains as equities struggled to make headway afterrecently climbing to highs not seen in five years.
The unexpected jump in consumer sentiment in October came asconsumers felt better about the economy in both the long and theshort term, the compilers of the Thomson Reuters/University ofMichigan survey said.
"What changed was how they (consumers) evaluated economicconditions," survey director Richard Curtin said in a statement."Economic conditions during the year ahead were expected to be'good' by more consumers, and more consumers expected 'good'economic times over the next five years."
The survey's gauge of consumer expectations jumped to 79.5from 73.5, well above an expected reading of 74. Expectationswere at their highest since July 2007.
The survey's barometer of current economic conditions roseto 88.6 from 85.7 and was above a forecast of 86.
A separate report showed U.S. producer prices rose more thanexpected in September as the cost of gasoline surged, butunderlying inflation pressures were muted in a sign the FederalReserve has room to carry out its new monetary stimulus program.
The Labor Department said on Friday its seasonally adjustedProducer Price Index increased 1.1 percent last month.Economists polled by Reuters had expected prices at farms,factories and refineries to rise 0.7 percent after climbing 1.7percent in August.
(Editing by James Dalgleish)
Keywords: USA ECONOMY/