NEW YORK — A surge in the Consumer Confidence Index to a two-year high helped send the previously sagging Dow Jones Industrial Average up 123.22 points Tuesday.

July’s index, reported by The Conference Board, came in at 106.1 for July, up from 102.8 last month. It was boosted in part by employment gains. The Expectations Index also jumped to 105.8 from 100.8.

“Consumer confidence has now increased four consecutive months, and is at its highest level since June 2002, when it registered 106.3,” said Lynn Franco, director of the Board’s Consumer Research Center, in a statement.

She added, “The spring turnaround has been fueled by gains in employment, and unless the job market sours, consumer confidence should continue to post solid numbers.”

Stephen Gallagher, economist at SG Cowen, wrote in a commentary that consumption should remain healthy. “Steady consumer growth and low inventories will imply production gains and further rate increases,” he wrote. The economist said the data validates expectations for further interest rate increases by the Federal Reserve, with the next quarter-percentage increase expected at the Aug. 10 meeting.

While consumers are confident right now, retail analyst Richard Hastings of Bernard Sands cautioned in a report that there’s still a chance the “consumer mood is topping out.”

He noted that, while the job market has improved, wage growth is not keeping up with the total cost of living. In addition, some consumer prices have risen in the past months, such as meat and dairy.

“There is evidence from specific pressure points — like home equity debt — that suggest households are reaching for help from a new piggy bank, their own homes,” he noted. The problem, he explained, is that outstanding home equity debt stays with the borrower.

Still, the employment outlook remains optimistic. The board reported that consumers expecting fewer jobs declined to 13.1 percent from 16.8 percent, although those anticipating more jobs being available eased to 19.4 percent from 19.9 percent.

For Wall Street, the increase in consumer confidence was a much needed tonic. The Dow had suffered 11 declines this month. After the board’s report, a rally took hold. The Dow finished the day with a 1.24 percent gain to 10,085.14, while the Nasdaq gained 30.08 points to close at 1,869.1.

This story first appeared in the July 28, 2004 issue of WWD. Subscribe Today.

Among the big retail winners trading on the New York Stock Exchange were Sears, Roebuck & Co., up $2.04 to close at $35.38; J.C. Penney Co. Inc., up $1.82 to close at $38.95; Chico’s, up $1.79 to close at $41.35, and Federated Department Stores, up $1.65 to close at $48.40.