NEW YORK, Oct 16 (Reuters) - U.S. consumer sentiment fell unexpectedly this month on persistent worries that the "dismal" state of personal finances would not recover quickly from the worst recession in decades, a report showed on Friday. The Reuters/University of Michigan Surveys of Consumers said its preliminary index of sentiment for October fell to 69.4, from September's 73.5. That was below economists' median expectation of a steady reading of 73.5, according to a Reuters poll. "While consumers still anticipated gains in the general economy and now think that the unemployment rate is close to its cyclical peak, there has been no improvement in consumers' dismal assessments of their personal financial situation," the report said. "Indeed, personal finances have undergone the longest and deepest decline in the 60-year history of the surveys, and few consumers expect their finances to improve anytime soon." The report said diverging prospects for the general economy and personal finances would have a negative impact on the pace of the recovery, with consumers eager to increase their savings and pay down debts. It said total consumption expenditures were expected to grow at a "meager rate" in the fourth quarter of "just below 1.0 percent", and 1.6 percent throughout 2010. "After mid 2010, without some additional stimulus, such a tepid growth rate would be insufficient to create enough jobs to significantly lower the unemployment rate and bolster consumers' incomes," the report added. The report's index of current conditions decreased to 72.1 in October from 73.4 in September. The expectations index fell to 67.6 from 73.5. Inflation expectations continued their recent volatility, which is likely to be closely watched by the Federal Reserve since it has pumped loads of cheap cash into the economy in an effort to restore growth. One-year inflation expectations rose to 2.8 percent from 2.2 percent in September. Five-year inflation expectations edged up to 2.9 percent from 2.8 percent.

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