updated 7/25/2006 4:46:25 PM ET 2006-07-25T20:46:25

Consumers shrugged off higher gasoline prices in July and grew a bit more optimistic about the economy, a private research group said on Tuesday.

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The optimism may be short-lived, however, as shoppers face a slew of concerns, including rising interest rates, falling home prices, more expensive fuel costs and war in the Middle East.

Indeed, home sales, which have been a source of confidence for consumers, fell again in June.

The National Association of Realtors reported Tuesday that sales of previously owned homes and condominiums dropped 1.3 percent in June to a seasonally adjusted annual rate of 6.62 million units. It was eighth time in the past 10 months that sales slipped, while home prices edged up at the slowest pace in more than a decade.

The New York-based Conference Board said that its confidence index rose to a better-than-expected reading of 106.5 from a revised 105.4 in June. Analysts had expected the index to fall slightly to 104.

Consumer confidence has been volatile this year, with the index posting declines both in February and May amid pessimism about the job market. This year’s overall performance is in line with the rebound seen since last November in the aftermath of last year’s Gulf of Mexico hurricanes, however.

The Present Situation Index, which measures how shoppers feel now about economic conditions, rose to 133.0 from 132.2. The Expectations Index, which measures consumers’ outlook over the next six months, edged up to 88.8 from 87.5 last month.

“Consumer confidence continues to hold steady, with the prognosis little changed from last month,” said Lynn Franco, director of The Conference Board 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.”

Tuesday’s report on confidence could soothe retailers, which are struggling with what appears to be a consumer spending slowdown. While several one-time factors like rainy weather helped to depress June’s retail sales figures, many analysts believe that the pressure from a slowing economy and higher gasoline prices are starting to take effect on consumer spending.

Last week, the International Council of Shopping Centers reduced its retail sales outlook for July.

The fear is that shoppers will continue to be frugal for the critical back-to-school season, which starts next month. So far, the early signs don’t bode well. According to a recent survey conducted by the NPD Group Inc., a market research firm, consumers polled say they plan to shop later and spend the same amount compared with last year.

While Federal Reserve chairman Ben Bernanke suggested last week that the series of interest rate hikes — aimed to combat inflation — may be nearing an end, high energy costs could drive up prices elsewhere and the Fed faces a tricky challenge of keeping inflation in check without derailing the economy.

Although the job market remains healthy, energy costs have already helped to slow down the nation’s payroll growth in recent months. Some employers are taking a wait-and-see stance as they figure out where the economy is heading.

Copyright 2006 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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