* German consumer morale hits highest level in 2.5 yrs
* French consumer spending rises in July, falls in August
* Italian confidence hits highest level since April
* Spain, Ireland ratings fears point to two-speed recovery
(Adds details from France, Germany, quotes)
By Deepa Babington
ROME, Sept 28 (Reuters) - Consumer sentiment in Germany and Italy brightened and French consumer spending rose during the summer, data showed on Tuesday, suggesting the recovery in core euro zone states may hold up better than expected in the second half.
Morale among shoppers in Europe's largest economy, Germany, is expected to rise going into October to its highest level since May 2008, backed by hopes the recovery will boost incomes, according to the GfK consumer morale indicator.
Italian consumer sentiment also surged more sharply than expected in September to reach its highest level in five months, as shoppers became more optimistic about their personal finances, the ISAE research institute said.
French data offered a more mixed picture, as shoppers took advantage of summer sales to push spending up a stronger than expected 2.7 percent in July, but held back on purchases in August.
"This is fairly volatile data but it confirms the picture we've had of a gradual reinforcement of consumption in the euro area," said Paolo Mameli, an analyst with Intesa Sanpaolo.
"First exports picked up, then investments by businesses and now we see signs of spending picking up. But it will be very gradual, with consumption expected to recover largely in 2011."
Germany, France and Italy together account for at least two thirds of economic output in the euro currency area.
But the outlook for the region's periphery remains far less rosy, fuelling prospects of a two-speed recovery.
Mounting concerns over the sovereign debt burden in Ireland and possible ratings downgrades there and in Spain drove peripheral yield spreads against German Bunds to fresh highs on Tuesday.
GDP growth in the euro zone as a whole accelerated to a surprisingly strong 1.0 percent quarter-on-quarter in the April-June period, largely due to a German surge, but is expected to slow during the second half of the year.
GERMANY STEAMS AHEAD
Analysts said the German sentiment data offered most cause for cheer. The fourth monthly gain in a row boosted the impression German growth is holding up surprisingly well despite expectations of a slowdown, after the record GDP expansion of 2.2 percent in the second quarter.
The GfK consumer sentiment indicator, based on a survey of 2,000 Germans, rose to 4.9 for October from an upwardly revised 4.3 for the previous month, the Nuremberg-based group said.
"This is an extremely pleasing number. Private households are becoming more confident," said Klaus Schruefer of SEB.
"Falling unemployment ... is contributing to that. Prices will also remain quite stable in the coming months. Despite moderate income increases this should suffice for real income growth."
Analysts were more cautious on sentiment from Italy, saying spending was more likely to be tied to the situation in the job market, which had yet to show any signs of a turnaround.
ISAE's confidence index rose to 107.2 in September from an unrevised 104.1 in August, beating all forecasts in a Reuters poll of 15 analysts that pointed to 104.0.
"The data is encouraging in a political and economic climate that could give some cause for concern, so this is a good sign," said UniCredit economist Davide Stroppa. "But it may not be informative on predicting consumption levels, which seem more driven by prospects in the labour market."
The Italian result, the strongest since April, added to a mixed picture for the euro zone's third largest economy, which is emerging only slowly from last year's steep recession.
Recent data has suggested the recovery is slowing, with industrial orders and output weaker than expected and bitter political infighting that has threatened to bring down Prime Minister Silvio Berlusconi's centre-right government.
French spending in August dropped 1.6 percent on the month after a surprise 2.7 percent surge in July, which was driven by a sharp increase in spending on textiles and leather goods, thanks to summer sales events.
"Although this suggests that consumption growth is improving, it still remains sluggish, probably reflecting still weak labour market conditions as well as looming fiscal tightening," said Joost Beaumont, economist at ABN Amro.
"We therefore expect consumer spending to remain in the doldrums in the coming quarters and only to gain vigour in the second half of next year. This is also in line with our central view about the consumer in the euro zone as a whole."
September inflation data from six German states on Tuesday suggested prices in the euro zone as a whole would rise slightly faster, but inflation would remain well within the European Central Bank's target range.
(Editing by Gavin Jones, John Stonestreet)