WASHINGTON -- With income on the rise, consumers cut back on their spending in December as automobile free-financing offers and other incentives began to wane.

The 0.2 percent drop in spending followed a revised 0.3 percent decline in November, a much smaller decrease than previously reported, the Commerce Department said. However, consumer spending, which accounts for two-thirds of all economic activity, held up well even as the country suffered through a recession that began in March and got another jolt by the Sept. 11 terror attacks.

Cash left over from home refinancing stemming from low mortgage rates, heavy discounting by retailers and zero-percent financing has induced people to spend.

Consumer spending in the fourth quarter was up a strong 5.4 percent, one of the reasons the economy was able to grow at a 0.2 percent rate during the period and defy expectations of another negative quarter. Americans' incomes, which include wages, interest and government benefits rose a healthy 0.4 percent in December after a flat November.

Income and spending for all of 2001 each rose by 4.9 percent. Although it was the smallest increase since 1991, the fact that consumer spending didn't collapse under the strain of rising unemployment and economic turmoil was heartening to many economists