NEW YORK (Reuters) - Consumer sentiment improved in February, buoyed by signs of increased hiring, though worries heightened about a decline in future income, a survey released on Friday showed.

The Thomson Reuters/University of Michigan's preliminary reading on the overall index of consumer sentiment rose to 76.3 from 73.8 in January, topping economists' forecasts of 74.8.

The barometer of current economic conditions rose to 88 from 85, while the gauge of consumer expectations rose to 68.7 from 66.6.

Households with incomes below $75,000 were among the most optimistic, "with expected gains in employment more than offsetting declines in after-tax incomes due to the end of the payroll tax cut," survey director Richard Curtin said in a statement.

U.S. employment grew modestly in January and job gains for the prior two months were larger than first reported.

However, expectations for inflation-adjusted incomes were more negative in early February than they were in 1980, when prices were increasing at double-digit rates, the survey showed.

That, Curtin said, was because "even the current low rate of inflation is dramatically higher than the zero growth rate expected for household income."

The most recent Labor Department data showed U.S. consumer prices rose 1.7 percent in the year to December.

One-year inflation expectations held steady at 3.3 percent, while the survey's five-to-10-year inflation outlook rose to 3.0 percent from 2.9 percent.

(Reporting By Steven C. Johnson; Editing by Chizu Nomiyama)