SYDNEY (REUTERS) - A measure of Australian consumer sentiment dived in June to entirely reverse the previous month's promising increase, a blow to hopes for a much-needed upturn in household spending.

The survey of 1,200 people by the Melbourne Institute and Westpac Bank showed its index of consumer sentiment slid a seasonally adjusted 6.9 percent in June.

The index reading of 95.3 was 2.3 per cent higher than in June 2014, but the weakest since the start of this year.

The drop wiped out May's 6.4 per cent increase which had followed a cut in interest rates to record lows and a government budget that included a surprise tax break for small businesses. "This is a surprisingly weak result. It now appears that last month's surge of optimism was a brief 'relief rally'," said Bill Evans, Westpac's chief economist.

Mr Evans cited several possible reasons for the pullback including falls in the share market; uncertainty in Europe; more signs of soft conditions in labour markets and nervousness about the outlook for house prices.

Concerns about the economy were at the forefront of consumer minds. The survey's measure of economic conditions for the next 12 months dropped 7.7 per cent, while that for the next 5 years plunged 17.1 per cent.

A measure of family finances compared to a year ago showed the sole improvement with a rise of 1.6 per cent, but the outlook for the next 12 months fell 8.9 per cent.

The index for whether it was a good time to buy a major household item also dropped 2.5 per cent.

Respondents recalled news on 'economic conditions' and the'budget and taxation' as being very unfavourable, a blow to the Liberal National government of Tony Abbott which had touted its budget as a boon to confidence.

The Reserve Bank of Australia (RBA) will likely also be disappointed that its latest rate cut to 2 per cent did not have a longer-lasting impact on the consumer mood.