Consumer spending grew at a moderate pace in February, led by surprisingly strong auto sales.

Retail sales rose 0.5% last month, according to government data, less than the consensus expectation of 0.7%. Excluding autos, sales also came in less than expected, rising 0.4%. Auto sales rose 0.7%.

February's somewhat disappointing data was offset by an upward revision in January sales, which rose 0.3%. Previously, the government said sales fell 0.3%.

In sum, the data showed moderate growth and failed to add to the credit market's recent concerns about creeping inflation and the possibility of the

Fed

taking a more aggressive approach in raising interest rates. At its next meeting, the central bank is expected to raise rates by a quarter of a percentage point for the seventh time since last June, putting the fed funds rate at 2.75%.

The yield on the Treasury's 10-year note was unchanged after the data's release, having hit a seven-month high last week. Recently, the 10-year was up 6/32 in price to yield 4.48%.

As expected, gasoline sales posted a sharp increase, gaining 0.9%, reflecting the rally in energy prices in the first months of 2005.