Separate data released earlier showed the U.S. trade deficit widened in November to its largest in five months, prompting some economists to slightly rein in growth expectations for the fourth quarter.
The Thomson Reuters/University of Michigan preliminary January reading on its overall index of consumer sentiment rose to 74.0 from 69.9 in December for the fifth month of gains and the highest level since May 2011.
The report topped expectations of 71.5 and was in contrast to December's weaker-than-expected retail sales reported.
"This shows even though the retail sales number this week was disappointing there could be a little more underlying strength," said Kathy Lien, director of research at GFT Forex in Jersey City.
"I'd be wary of looking at this as a shift in long-term confidence, but I'd look at this as good news today."
While the gain brought the index close to 2011's high point, it is still well off the strength seen before the financial crisis.
The day's data was eclipsed in financial markets, however, by reports that Standard & Poor's was set to downgrade the ratings on several euro zone countries. Wall Street was down about 1 percent in midday trade.
Europe Could Threaten
U.S. Commerce Department data showed the trade gap totaled $47.8 billion in November, exceeding analysts' forecast of a $45.0 billion deficit.
"The trade balance deteriorated pretty significantly and it could shave a few tenths of a percent off our expectation for fourth quarter (growth)," said Russell Price, senior economist at Ameriprise Financial.
JPMorgan said gross domestic product growth for the fourth quarter was now tracking closer to 3.0 percent than their forecast of 3.5 percent.
A wider deficit shows that more goods and services bought by U.S. businesses and consumers were produced outside the country, subtracting from gross domestic product.
"The external outlook does not bode well for U.S. exports, as a deceleration in global growth will coincide with a stronger U.S. dollar due to lingering financial concerns regarding Europe's sovereign debt turbulences," wrote Martin Schwerdtfeger, senior economist at TD Bank Group, in a note.
Separately, a dip in import prices showed inflation pressures were still muted, giving the Federal Reserve wiggle room as it holds U.S. benchmark interest rates at ultra-low levels.
Import prices were down 0.1 percent in December after a 0.8 percent gain in November as oil prices fell, in line with economists' expectations.
Economic growth in the final quarter of 2011 is likely to have accelerated from the third quarter's 1.8 percent rate, with many economists expecting an annualized rise of around 3 percent.
JPMorgan Chase & Co Chief Executive Jamie Dimon sounded a positive note on the economy on Friday, saying the United States' recovery was strengthening, though he expressed concern over the European debt crisis.
Consumer spending, once a key pillar of the U.S. economy, remains lackluster and sensitive to shocks. Although some Federal Reserve officials have said taking further steps to juice the economy may be needed, no action is expected at the next Fed policy meeting at the end of the month.
Thirty-four percent of consumers polled in the confidence survey said they had heard of recent job gains, a record high in the survey's history and well above December's 21 percent.
"The data suggest a stronger consumer spending outlook, rising to about a 2.1 percent gain in 2012," survey director Richard Curtin said in a statement.
But consumers still lacked confidence in government economic policies with the majority rating them unfavorably for the sixth month in a row.
Americans also remained dour on their personal finances with just 24 percent expecting their finances to improve in January, slightly below 25 percent last month.
The survey's barometer of current economic conditions
