Expectations of more cash to spend due to federal tax cut extensions and a temporary reduction on payroll taxes also brightened consumers' mood, according to the latest consumer survey from Thomson Reuters and the University of Michigan.

"The tax cuts, nonetheless, helped to improve overall prospects for the national economy, including job prospects," said Richard Curtin, director of the Thomson Reuters and University of Michigan survey.

The overall index on consumer sentiment ended January at 74.2, compared with 74.5 in December. It was above a preliminary January reading of 72.7 and median forecast of 73.2 among economists polled recently by Reuters.

Consumers' current mood recovered from earlier this month, but still was soured by gasoline prices stuck above $3 a gallon.

The barometer of current economic conditions was 81.8 in late January, down from 85.3 in December. But it was up from 79.8 in the preliminary January report and a forecast of 80.0.

The survey's gauge of consumer expectations rose to 69.3 — the highest since June — from 67.5 in December. It was also above a preliminary reading of 68.2 and a forecast of 64.5.

Moreover, the 12-month economic outlook index held at 87 from early January, which was the highest since September 2009.

However, consumers grew more anxious over more money spent on food and gasoline.

Their one-year inflation expectations edged up to 3.4 percent from 3.3 percent earlier this month and from 3.0 percent in December. This was the highest since October 2008.

The five-to-10-year inflation outlook ended at 2.9 percent after holding at 2.8 percent for three straight months.