May 26 (Bloomberg) -- Confidence among U.S. consumers jumped in May by the most in six years, fueling speculation the economy will recover later this year.

The Conference Board’s sentiment index surged to 54.9, higher than forecast, according to figures from the New York- based research group today. A report from S&P/Case-Shiller showed home prices continued to plunge.

Stocks climbed for the first time in five days on speculation a lifting of the gloom surrounding the worst recession in half a century may spur consumers, who account for 70 percent of the economy, to spend. Still, rising unemployment and falling real estate values underscore that it will take time to establish a sustained rebound.

“Pent-up demand is increasing each passing day as reflected in these confidence numbers,” said Nariman Behravesh, chief economist at IHS Global Insight in Lexington, Massachusetts. “But there is a funny dynamic going on as people are waiting. The turn will come when there is a sense that we have passed the bottom,” which Behravesh said may happen as early as August.

The Standard & Poor’s 500 index increased 2.1 percent, to 905.88 at 12:28 p.m. in New York. Treasury securities fell, pushing the yield on the 10-year note up to 3.48 percent from 3.45 percent late on May 22.

The 28-point jump in confidence over April and May is the biggest two-month rally since records began in 1967. The measure reached its lowest point ever in February, with a reading of 25.3.

Exceeds Forecast

Consumer confidence was projected to rise to 42.6, according to the median estimate in a Bloomberg News survey of 70 economists. Forecasts ranged from 38.5 to 47.

The Conference Board revised the April reading to 40.8, from an originally reported 39.2.

Americans’ spirits are lifting as stock prices rebound, mortgage rates fall and perceptions grow that the job market may not get much worse. Discounts by companies such as Chrysler LLC and Macy’s Inc. to attract customers are also benefiting consumers.

“We’re certainly moving in the right direction,” said James O’Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut. “We expect to have positive economic growth in the third quarter. The job declines will fade.”

The confidence report showed the share of Americans planning to buy a car in the next six months rose to the highest level since April 2008, and those looking to purchase a large appliance rose to an eight-month high. The outlook for home purchases fell.

Real-Estate Slump

Concern over falling property values may be contributing to that restraint. A report from S&P/Case-Shiller today showed home prices in 20 U.S. metropolitan areas fell a more-than-forecast 18.7 percent in March from the same month last year, as foreclosures surged.

All 20 cities in the index showed a year-over-year price decrease in March, led by Phoenix, Las Vegas and San Francisco.

Compared with the prior month, prices fell in 17 cities, led by a 6.1 percent drop in Minneapolis that was the largest one-month decrease ever recorded by any city. The 4.9 percent month-over-month fall in Detroit and the 2.5 percent decrease in New York also set records for those cities.

“We see no evidence that a recovery in home prices has begun,” David Blitzer, chairman of the index committee at S&P, said in a statement.

Record Drop

The report also showed prices nationally fell 19.1 percent in the first quarter from the same period last year, the largest drop in the figure’s 21-year history, and were down 7.5 percent from the last three months of 2008.

“The housing market still has somewhat of a ways to go before it completely bottoms,” Celia Chen, an economist at Moody’s Economy.com in West Chester, Pennsylvania, said in an interview on Bloomberg Television. “Prices I think still will fall a little bit further.”

The confidence report showed optimism over the next six months led the jump. The Conference Board’s expectations measure rose to 72.3, the highest level since December 2007. The gauge of present conditions increased to 28.9 from 25.5.

The share of consumers who said more jobs will be available in the next six months climbed to 20 percent, the most in more than five years. The proportion of people who said they expect their incomes to rise over the next six months rose to 10.2 percent from 8.3 percent.

“As far as consumers are concerned, the worst is now behind us,” Lynn Franco, director of the Conference Board’s consumer research center, said in a statement.

Macy’s, the second-biggest U.S. department store, and Chrysler are trying to revive sales. Chrysler, trying to restructure under bankruptcy, is offering incentives of as much as $6,000.

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

Last Updated: May 26, 2009 12:35 EDT