(Adds consumer confidence, housing data, updates markets)
* Consumer spending increases 0.4 percent in April
* Core PCE price index rebounds 0.2 percent
* Personal income rises 0.4 percent; wages surge 0.7 percent
* Consumer confidence dips in May; house prices up in March
By Lucia Mutikani
WASHINGTON, May 30 (Reuters) - U.S. consumer spending recorded its biggest increase in four months in April and monthly inflation rebounded, pointing to firming domestic demand that could allow the Federal Reserve to raise interest rates next month.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, is likely to remain on solid ground in the wake of other reports on Tuesday that showed confidence among households still at lofty levels despite some slippage this month and strong gains in house prices in March.
"Fed officials can continue with their gradual pace of rate hikes in June as the economy remains on course for stronger growth this quarter and throughout the rest of the year," said Chris Rupkey, chief economist at MUFG Union Bank in New York.
The Commerce Department reported that consumer spending increased 0.4 percent last month after an upwardly revised 0.3 percent gain in March as households spent more on both goods and services.
April's increase was the biggest since December and eased concerns about second-quarter economic growth after weak reports on core capital goods orders, the goods trade deficit and inventory investment in April. Consumer spending was previously reported to have been unchanged in March.
Consumer spending grew at its slowest pace in more than seven years in the first quarter, helping to restrict the increase in gross domestic product to an annual rate of 1.2 percent in the first three months of the year.
Following April's report and upward revisions to March's data, economists said consumer spending was running at around a 3 percent rate, a sharp acceleration from the first quarter's 0.6 percent pace. GDP growth estimates for the second quarter range between a rate of 2 percent and 3.8 percent.
"This takes out the downside risk to our projection for 3 percent real GDP growth this quarter, and we now see more balanced risks around that call," said Michael Feroli, an economist at JPMorgan in New York.
U.S. stocks were trading slightly lower amid a drop in oil prices. The dollar dipped against a basket of currencies while U.S. government bond prices rose.
TIGHTENING JOB MARKET
Minutes of the Fed's May 2-3 policy meeting, which were published last week, showed that while policymakers agreed they should hold off hiking rates until there was evidence the growth slowdown was transitory, "most participants" believed "it would soon be appropriate" to raise borrowing costs.