By Lucia Mutikani

WASHINGTON (Reuters) - U.S. consumer spending rebounded by the most on record in May, but the gains are not likely to be sustainable, with income dropping and expected to decline further as millions lose their unemployment checks starting next month.

The surge in spending reported by the Commerce Department on Friday is also under threat from a jump in coronavirus cases in many parts of the country, including densely populated California, Texas and Florida. The rising COVID-19 infections chipped at consumer sentiment in the second half of June. Confidence in government economic policies dropped in June to the lowest level since President Donald Trump entered the White House.

The economy has been showing signs of turning around after tough measures to slow the spread of the respiratory illness pushed it into recession in February. Hiring, homebuilding permits, industrial output and orders for manufactured goods rebounded in May, recouping some of their historic losses.

"There are still huge pitfalls ahead for the economy," said Gus Faucher, chief economist at PNC Financial in Pittsburgh, Pennsylvania.

The Commerce Department said consumer spending, which accounts for more than two-thirds of U.S. economic activity, jumped 8.2% last month. That was largest increase since the government started tracking the series in 1959. Consumer spending tumbled by a historic 12.6% in April.

Economists polled by Reuters had forecast spending rising 9.0% in May. Spending was boosted by the reopening of many businesses after being shuttered in mid-March.

Consumers stepped up purchases of motor vehicles and recreational goods. They also boosted spending on healthcare, and at restaurants, hotels and motels.

But personal income dropped 4.2%, the most since January 2013, after surging by a record 10.8% in April when the government handed out one-time $1,200 checks to millions of people and boosted unemployment benefits to cushion against the COVID-19 hardship. The payments are part of a historic fiscal package worth nearly $3 trillion.

In a separate survey on Friday, the University of Michigan said its consumer sentiment index dipped to a reading of 78.1 from 78.9 in the middle of June. Though sentiment rose from May, consumers in the regions with record rises in coronavirus cases were less upbeat relative to Northeast residents, which could weigh on the overall mood in the months ahead.

Stocks on Wall Street fell, pressured by the rising virus infections and the Federal Reserve's move to cap big bank dividend payments and bar share repurchases until at least the fourth quarter. The dollar rose against a basket of currencies. U.S. Treasury prices were higher.