American consumer confidence rose in December to the highest since before hurricanes devastated the Gulf Coast, helped by falling gasoline prices and an improving labor market

The Conference Board’s consumer confidence index rose to 103.6 from 98.3 last month, the New York-based research group said today. The index was the highest since 105.5 in August.

Confidence measures are returning to levels seen before hurricanes struck the in August, September, and October, raising energy prices and throwing Gulf Coast residents out of work. The National Retail Federation estimates holiday spending rose 6% as gasoline prices fell in the past two months and the economy added more jobs.

“We’re still returning to pre-hurricane levels but in general this is a good report,” an economist at Mizuho Securities USA Incorporated in New York, Glenn Haberbush, said. “This is further evidence labor markets are still healthy in the U.S.”

Compared with November, today’s report showed that more Americans described jobs as plentiful and planned to buy cars and major appliances in the next six months.

Fewer planned to buy houses, adding to concern that one pillar of strength in the economy may weaken. American mortgage applications filed last week fell to the lowest level in more than three years, the Mortgage Bankers Association said today. The index of applications to buy a home or refinance a mortgage fell 6.8% to 554.1 last week from 594.6 a week earlier.

Economists estimated the index would rise to 103 from November’s originally reported 98.9, based on the median of 52 forecasts in a Bloomberg News survey.

Treasury notes fell after the report, which may bolster speculation that the Federal Reserve will keep raising interest rates through March. The benchmark 10-year note fell 5/32, pushing up its yield to 4.36% at 1 p.m. in New York yesterday.

Yields on 10-year notes held at about the same levels as two-year notes for a second day, a so-called flattening of the yield curve. Ten-year yields yesterday briefly fell below two-year yields for the first time since 2000, a sign some investors expect the Fed’s 13 rate increases since June 2004 to eventually slow economic growth.

“I think it’s probably going to invert further,” a senior financial economist at Bank of Tokyo-Mitsubishi Limited in New York, Christopher Rupkey, said in an interview. “The market is telling you we’re not going to continue to lift 10-year yields with the fed funds rate because eventually you will have to reverse and push rates down.”

Yesterday’s report showed a gauge of Americans’ optimism about their present situation rose to 121.5 from 113.2 last month, the biggest jump this year and the highest since August.

A component of the index that tracks expectations for the next six months rose to 91.6, also the highest in four months, from 88.4. Economists including UBS Securities LLC’s Jim O’Sullivan said this has a more direct relationship to consumer spending, which accounts for about 70% of the economy.

American retailers are offering discounts and extending hours to bolster holiday sales. Retail sales rose 3.9% last week from a year ago, the International Council of Shopping Centers said yesterday. The group expects sales for the season to have risen 3% to 3.5%. Sales at mall-based and shopping center chains have risen a weekly average of 7.4% so far this month, according to ShopperTrak RCT Corp.

“The last few weeks have been very strong,” the president of American stores for Toys R’ Us, John Barbour, said in a December 19 interview. “We’re feeling very good about the holiday season that is developing.”

The Conference Board’s survey of 5,000 households follows the University of Michigan’s survey of 500.The University of Michigan gauge, released on December 23, rose to a better than expected 91.5 in December from 81.6 the month before.

“We have a consumer that is constructively, though not exuberantly, optimistic,” a chief economist at Cleveland-based National City Corporation, Richard DeKaser, said. “To the extent we have improving sentiment, that’s helpful with respect to consumer spending prospects.”

Consumers’ views on the labor market brightened. The share of consumers who said jobs were hard to get declined to 22.2% from 23.6% last month. Those who said jobs were plentiful this month rose to 23.3% from 21.1%.

Jobless claims averaged 325,670 a week this month and are back at levels from before Hurricane Katrina hit the Gulf Coast in August. The unemployment rate in November held at 5% and workers earned 3.2% more than in November 2004, Labor Department data showed this month.

Reserve Bank of Richmond President Jeffrey Lacker said he doesn’t expect “major movement” in the unemployment rate.

The Fed on December 13 raised its target interest rate a quarter point to 4.25%.The Fed said in a statement that “core inflation has remained relatively low” and that “economic activity appeared solid” even with higher energy prices and disruptions from Hurricanes Katrina, Rita, and Wilma.

The average price of regular-grade gasoline fell to about $2.18 a gallon this month from $2.26 in November, according to the Department of Energy. The record high was $3.069 a gallon in the week ended September 5, after Katrina. The price is still about 21% higher than a year ago.