NEW YORK — U.S. consumers were unexpectedly optimistic in July as consumer confidence rose for a second straight month.

The Conference Board’s Consumer Confi­dence Index increased to 106.5 from 105.4 in June.

The jump in confidence, along with falling oil prices, lifted stocks on Tuesday, which followed a rally on Monday. The Dow Jones Industrial Average closed up 0.5 percent at 11,103.71 while the S&P 500 rose 0.6 percent at 1,268.88.

Some economists were anticipating the July reading to fall, but current labor market conditions helped boost confidence. However, the proportion of consumers who expected their incomes to increase in the months ahead remained virtually unchanged at 17.7 percent.

The strength in the survey reflected gains both in the present situation index, which rose to 133 from 132.2, and the expectations index, up to 88.8 from 87.5.

UBS economist Maury Harris wrote in a research note Tuesday, “Despite the rise for the second month in a row, the expectations component was still down from its pre-Katrina 2005 average of 94.2.” The economist said the expectations component, which “correlates more closely with the rate of growth in consumer spending than the present situation or the overall indexes, has been trending lower.”

Whether consumers’ optimism will hold steady is unclear. On Tuesday, the National Association of Realtors said sales of previously owned homes and condominiums fell by 1.3 percent in June, the third drop in a row, representing the eighth decline in 10 months. In contrast, prices also increased at the slowest pace since May 1995. The current gain is 0.9 percent over June 2005, which was also the smallest year-to-year price increase since May 1995.

The cutoff date for July’s preliminary results was July 18. Since then, oil prices have risen because of the Middle East conflict. In addition, there is debate on whether the Federal Reserve will raise interest rates again in early August.

“Consumer confidence continues to hold steady, with the prognosis little changed from last month,” said Lynn Franco, director of the Conference Board’s Consumer Research Center. “Present-day conditions remain favorable, though not as strong as earlier this year. Expectations for the months ahead remain cautious and also below levels earlier this year.”

This story first appeared in the July 26, 2006 issue of WWD. Subscribe Today.

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