U.S. consumer sentiment improved marginally in early July, supported by a healthier jobs market and a fairly optimistic outlook on the world's largest economy, according to a survey released on Friday

The sentiment index of the University of Michigan's (search) preliminary survey of consumer confidence for July rose to 96.0 from a final reading of 95.6 in June, according to sources who saw the subscription-only report.

Economists polled by Reuters had forecast a rise to 97.0.

"I expect that consumer confidence will improve gradually because the pace of economic growth is not that great," said William Cheney, chief economist at John Hancock Financial Services Inc. in Boston.

"It's nice that it's stayed up. It seems that we have been spending through the ups and downs. I don't see any evidence that consumers' inclination to spend has changed," he added.

The expectations index grew to 90.4 in July from 88.5 in June, in line with a labor market that has improved markedly. Business surveys have indicated that U.S. firms intend to increase their hiring significantly in the months ahead.

The current conditions component increased to 104.6 from 106.7 in June.

Some economists, however, were cautious. Although the U.S. economy continued to expand at an above-average rate compared with other major world economies, analysts say the expansion was at a less rapid pace than at the beginning of the year.

"We have to be careful to see if these consumer numbers hold up if it proves that the labor market is really cooling off compared to the heating up we've seen earlier this year," said Bob Brusca, economist at Fact and Opinion Economics (search) in New York.

"The question is if that keeps up over the next couple of months are we going to see consumer sentiment settle back to a lower level?" he added.

The University of Michigan's preliminary survey is based on 250 interviews.

U.S. Treasuries extended their rally after the confidence data, while the dollar fell to four-month lows against the euro above $1.2436 .

Other measures of confidence, which some analysts use as a proxy to try to determine future spending patterns, also rose.

ABC News and Money Magazine said this week their Consumer Comfort index grew in the week ended July 11, drawing support from an easing in gasoline prices.

Investor's Business Daily and TechnoMetrica Market Intelligence said their economic optimism index rose in July, reassured by three straight months of U.S. jobs growth.