U.S. consumer sentiment unexpectedly rose to its highest in five years in October in the latest in a string of encouraging signs from the economy that may boost President Obama's reelection hopes as voters go to the polls next month.

The Thomson Reuters/University of Michigan's preliminary October reading on the overall index on consumer sentiment came in at 83.1, up from 78.3 the month before, and the highest since September 2007, the survey showed on Friday.

The new buoyancy among consumers comes shortly after the U.S. unemployment rate tumbled to its lowest in nearly four years in September as more people returned to the workforce and found jobs than economists had predicted.

"We are getting some quite interesting signals from consumer sentiment and employment data - both (the) unemployment rate and initial claims - that there has been some quite significant improvement in the economy," said David Sloan, an economist at 4Cast in New York.

Economic issues have been a battleground in the election campaign as Obama seeks to burnish his credentials as a competent manager of the economy while Republican challenger Mitt Romney has faulted his record on job creation and growth. Friday's sentiment report was the last ahead of the November 6 poll and will be welcomed by Democrats.

The sentiment reading was well above the median forecast for a slight decline to 78 among economists polled by Reuters as consumers felt better about the economy overall.

U.S. stocks were higher after the news but turned lower by midday as equities struggle to make headway after recently climbing to highs not seen in five years. The S&P 500 was down 0.2 percent in early afternoon trade.

Both JPMorgan Chase and Wells Fargo & Co posted record profit on Friday as a recovery in the housing market this year boosted mortgage lending at both banks.

"We believe the housing market has turned the corner," JPMorgan Chief Executive Jamie Dimon said in a statement.

Shares in both JP Morgan and Wells Fargo were lower by midday, however, with investors apparently focusing on a shortfall in Wells Fargo's revenue compared to analysts' forecasts.

October's unexpected jump in sentiment came as consumers felt better about the economy in both the long and the short term, the compilers of the Thomson Reuters/University of Michigan survey said.

"What changed was how they (consumers) evaluated economic conditions," survey director Richard Curtin said in a statement. "Economic conditions during the year ahead were expected to be 'good' by more consumers, and more consumers expected 'good' economic times over the next five years."

The survey's gauge of consumer expectations jumped to 79.5 from 73.5, well above an expected reading of 74. Expectations were at their highest since July 2007.

The survey's barometer of current economic conditions rose to 88.6 from 85.7 and was above a forecast of 86.

As well as September's employment report there have been a number of other encouraging indications from the economy, including a downward trend in the four-week moving average for new jobless claims, and last month's expansionary reading for the U.S. manufacturing sector after three months of contraction.

Also on Friday, The Economic Cycle Research Institute, a New York-based independent forecasting group, said its measure of future U.S. economic expansion pushed higher last week, while the annualized growth rate rose to its loftiest in more than a year.

The institute said its Weekly Leading Index increased to 127.7 in the week ended October 5 from a revised 126.2 the previous week. The index's annualized growth rate accelerated to its highest level since May 2011 at 5.7 percent, from 4.6 percent.

A separate report showed U.S. producer prices rose more than expected in September as the cost of gasoline surged, but underlying inflation pressures were muted in a sign the Federal Reserve has room to carry out its new monetary stimulus program.

"If you take out food and energy you are essentially looking at a number that didn't go anywhere and was actually probably a little weaker than expected," said Cary Leahey, an economist at Decision Economics in New York.

"These kinds of energy prices are debilitating to the economy and it is one of the reasons why we haven't been able to get any kind of a glide speed above a 2 percent annual (growth) rate."

The Labor Department said on Friday its seasonally adjusted Producer Price Index increased 1.1 percent last month. Economists polled by Reuters had expected prices at farms, factories and refineries to rise 0.7 percent after climbing 1.7 percent in August.

The Labor Department's report chimed with the sentiment survey that showed consumers' one-year inflation expectations fell to 3.1 percent from 3.3 percent, while the survey's five-to-10-year inflation outlook hit its lowest since March 2009, falling to 2.6 percent from 2.8 percent.

(Additional reporting by Chirs Reese; Editing by James Dalgleish)