U.S. consumer sentiment improved in early January as energy prices leveled, job conditions improved, and stocks rallied, a survey showed on Friday. The University of Michigan''s preliminary January index of consumer sentiment rose for a third straight month to 93.4 from December''s final reading of 91.5, according to sources who saw the subscription-only report.

The number surpassed the expectations of economists, who had forecast a 92.5 reading.

The survey''s expectations gauge increased to 81.5 in early January from 80.2 in late December. The index of current conditions rose to 112.0 from 109.1 at the end of December.

U.S. stocks dropped in midmorning on Friday on profit worries, brushing off the better-than-expected Michigan survey. The Standard & Poor''s 500 index fell 0.5 % and the Nasdaq composite was off 0.9 %.
In the debt markets, Treasuries pared early gains after the report suggested strength in the consumer sector. Benchmark 10-year Treasury notes were flat to yield 4.37 %.