The index, based on a monthly survey of 5,000 US households, is closely watched because consumer confidence drives consumer spending.

The jury remains out and investors remain cautious

Peter Cogliatti, Williams de Broe

And that accounts for about two-thirds of economic activity in the US.

Peter Cogliatti, a dealer at Williams de Broe, said the figures were slightly better than the market's worst fears.

Positive report

"People are worried about the quality of recovery from the United States. Is this as good as it gets? The jury remains out and investors remain cautious," he said.

But Wall Street reacted by sending share prices higher and the dollar continued to strengthen.

"Bottom line it was a positive (confidence) report," said Evan Grace, of State Street Research, Boston.

"The general index declined, but very modestly to a level that was higher than expectations."

The markets were also boosted by positive news from the tech company, IBM.

Earlier on Tuesday, the US dollar had steadied against other major currencies, after falling on Monday amid renewed fears about the weakness of the US economy.

The dollar has already weakened by 3.4% against the euro and 3.6% against the Japanese yen during April.

Gold soars

At one point on Monday, the US currency hit its weakest level against the euro for almost four months, while worries about the dollar's strength pushed gold prices to a two-year high of $312 per troy ounce.

"In the past week you've had gold strengthening by exactly the same amount as the dollar has weakened," said Stephen Briggs, a precious metals analyst at French bank Societe Generale.

"People's expectations (for recovery) have been moderated and that's softened the dollar," said Neill Nuttall of JP Morgan Investment Management in London.

US shoppers stay home

A fall in orders for big household items such as cars, freezers and washing machines, coupled with weak consumer confidence, has stoked concern about the strength of the US recovery.

The US had the biggest monthly fall in orders for durable goods in April since 1991, down 6.4%.

The bad news was topped off by poor consumer confidence data from the respected University of Michigan survey last week.

On the positive side, the US economy grew by 5.8% year on year in first three months of 2002.

Recovery not confirmed

But much of the increase came from defence spending as the US began operations in Afghanistan.

And although US firms were buying in stock to meet new orders, economists warned that any recovery was still very tentative.

Investors took note, and the Dow Jones stock index closed last week below the psychologically important 10,000 barrier for the first time since 22 February.

Good news for some

US manufacturers could be among the big winners from a weaker dollar, as it could give them a boost in export markets.

Countries and companies in the developing world which have to repay loans in dollars will also benefit.

Few metals analysts expect the gold price to rise much higher and some predict profit-taking.

At 1630 GMT the dollar was worth 128.41 yen, 0.9013 euro and �0.6855.