WASHINGTON (Reuters) - Sales at retailers unexpectedly fell in May for the first time in eight months, but a jump in consumer sentiment to a near 2-1/2 year high in early June eased fears of a slowdown in the economic recovery. The drop in sales reported by the Commerce Department on Friday followed last week's data showing a step back in private hiring in May, but analysts still saw little risk of the economy slipping back into recession. "The report is not evidence that the economy is getting ready for a double-dip or that consumers, facing headwinds of double-digit unemployment and bank credit restriction, are taking their ball and going home," said Chris Rupkey, chief financial economist at Bank of Tokyo/Mitsubishi in New York. Total retail sales dropped 1.2 percent in May, weighed down by a record decline in receipts at building materials suppliers, after rising 0.6 percent in April. Financial markets participants had forecast retail sales increasing 0.2 percent last month. Retail sales, which had risen for seven straight months, were up 6.9 percent compared to May last year. In a separate report, the consumer sentiment index rose to 75.5 from 73.6 at the end of May, according to the Thomson Reuters/University of Michigan's Surveys of Consumers. That was above market expectations for an increase to 74.5. The data offered some reassurance on the economic recovery after the surprise drop in retail sales. "This reinforces the view that what moved sales in May was the unwinding of incentives to buy energy-efficient appliances, and other issues like weather, the price of gas, and so forth," said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts. "If consumers were getting panicked, you'd have expected to see more worry showing up here." U.S. stock indices pared losses Friday morning after the sentiment data, while prices for government debt held gains. The U.S. dollar edged higher against the yen and the euro.

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