The Conference Board said Tuesday that its Consumer Confidence Index, which had dramatically increased in April, zoomed past economists' expectations to 54.9 from a revised 40.8 in April.

Economists surveyed by Thomson Reuters were expecting 42.3. In February, confidence levels had hit a new historic low of 25.3.

Highest in eight months

The reading marks the highest in eight months when the level was 61.4. The levels are also closer to the year-ago's 58.1, though the widely watched barometer is still below 100, which indicates a healthy economy.

Meanwhile, better-than-expected earnings results from such retailers as Sears Holdings Corp and Gap Inc have offered the latest evidence that spending has begun to stabilise, though overall business is still weak.

The Present Situation Index, which measures how shoppers feel now about the economy, rose to 28.9 from 25.5 last month.

But the Expectations Index, which measures shoppers' outlook over the next six months, climbed to 72.3 from 51.0 in April.

Investors focused on the upbeat sentiment reading, shaking off a mostly downbeat report on the housing market, also released Tuesday.

In midday trading, the Dow Jones industrial average was up by 160 points or 1.94 per cent, to 8,437.

"Looking ahead, consumers are considerably less pessimistic than they were earlier this year, and expectations are that business conditions, the labour market and incomes will improve in the coming months," Lynn Franco, director of The Conference Board Consumer Research Center, said in a statement.

"While confidence is still weak by historic standards, as far as consumers are concerned, the worst is now behind us."

The confidence report offered encouraging news to mer-chants, which are counting on consumers to be in the mood to spend after confidence plummeted to historic lows late last year but has been rising since March. A two-month stock rally has helped make shoppers feel a little better about their retirement funds, spurring dramatic rebounds in confidence in April and May levels.

Home prices tumble

The latest report on home prices, released Tuesday, was not comforting.

Home prices fell at the fastest annual rate on record in the first quarter, though the pace of month-to-month declines continues to slow, according to a closely watched housing index.

The Standard and Poor's/Case-Shiller National Home Price index reported home prices tumbled by 19.1 per cent in the first quarter, the most in its 21-year history.

Home prices have fallen 32.2 per cent since peaking in the second quarter of 2006 and are at levels not seen since the end of 2002.

- AP