(Reuters) - Consumer sentiment worsened this month, although a gauge of future economic activity rose in May, presenting a picture of a wobbly recovery.

The Friday reports are the latest data to suggest that the economy continued to spin its wheels in the second quarter, though there were some signs of optimism the recovery could regain momentum later in the year.

Highlighting concerns over the slower pace of growth since the beginning of the year, the International Monetary Fund cut its forecast for U.S. economic growth, warning Washington and debt-ridden European countries that they are "playing with fire" unless they take immediate steps to reduce their budget deficits.

U.S. consumer sentiment worsened more than expected in June on renewed concerns about the outlook for the economy, the Thomson Reuters/University of Michigan survey showed.

Consumers remained pessimistic about stagnant incomes and job prospects, and their view of their own finances was largely unchanged at negative levels.

"Job growth is, at best, anemic and the unemployment rate is high. If you've been laid off, it's probably been for a long period of time," said Cary Leahey, economist and managing director at Decision Economics in New York. "That can't help but affect these sentiment figures."

The preliminary reading on the overall index on consumer sentiment was 71.8, down from 74.3 the month before. It was below the median forecast of 74.0 among economists polled by Reuters.

Even so, the data gave little evidence a new downturn is underway, with most consumers believing the last recession had not yet ended, the survey found.

Consumer's view of rising prices was also mixed as the survey's one-year inflation expectation fell to its lowest since February, to 4.0 percent from 4.1 percent. But the five-to-10-year inflation outlook was at 3.0 percent, edging up from 2.9 percent.

A separate report showed economic activity rose more than expected in May, but high gasoline prices and a weak housing market will see growth remaining moderate.

The independent Conference Board said on Friday its Leading Economic Index increased 0.8 percent to a record high of 114.7 after a revised 0.4 percent fall in April. Economists had expected a rise of 0.2 percent.

U.S. stocks rose immediately following the data. Investors were also cheered as the leaders ofFrance and Germany said they were united behind a new aid package for debt-burdened Greece. The euro extended gains against the dollar.

The data came on the heels of Thursday's figures that gave better-than-expected readings on the labor and housing markets, but showed a contraction in Mid-Atlantic factory activity in June.

On Friday, the IMF forecast that U.S. gross domestic product would grow an anemic 2.5 percent this year and 2.7 percent in 2012. In its forecast just two months ago, it had expected 2.8 percent growth in 2011, rising to 2.9 percent in 2012.

U.S. lawmakers are in talks to reach a deficit-cutting deal that would give Congress the political cover to raise the $14.3 trillion debt limit well before August 2, when the Treasury Department has warned it will run out of money to pay the government's bills, a development that could wreak havoc in global markets.

Negotiators said on Thursday that they had tentatively agreed on a number of cuts and are now gearing up for tough trade-offs that could lead to trillions of dollars in savings.

(Additional reporting by Ellen Freilich; Editing by Padraic Cassidy)

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