U.S. consumer confidence posted its biggest jump in more than three years in April while the slump in home prices showed signs of slowing in February, adding to hopes that the recession may be waning.

The Conference Board said its sentiment index climbed to 39.2 this month from an upwardly revised 26.9 in March. The April reading, which was above economists' median expectation of a reading of 29.8, was the highest since November 2008.

It followed news showing U.S. house prices tumbled nearly 19 percent in February. But for the first time in 16 months, the fall did not set a new record, according to the Standard & Poor's/Case-Shiller Home Price Indices.

Together, the two reports support arguments that the U.S. economy is at least reaching bottom, even though huge problems in the financial sector and severe job losses mean growth may still be a distant prospect.

It is encouraging that some forward-looking indicators are suggesting hints of stabilization. But we are probably still some way away from an economic turnaround, said Vassili Serebriakov, currency strategist at Wells Fargo in New York.

While hopes on the economy appear to be rising, sentiment faces tough obstacles in fears of a possible global flu crisis and renewed worries on the health of some U.S. banks.

U.S. stock indices erased early losses. U.S. government bonds, which generally benefit more from signs of economic weakness, extended their losses.

CONFIDENCE GAME

The increase in the consumer confidence index was the highest since November 2005, when sentiment began to recover from the aftermath of Hurricane Katrina.

The survey's expectations index jumped to 49.5 this month from 30.2 in March.

The sharp increase in the expectations index suggests that consumers believe the economy is nearing a bottom, however this index remains well below levels associated with strong economic growth, said Lynn Franco, director of the industry group's Consumer Research Center.

Analysts attributed some of the confidence recovery to the rebound in stock prices, which staged an astounding rally of about 30 percent between mid-March and April.

U.S. home values extended their massive decline in February, even though there were signs that the slump was slowing.

U.S. house prices were down 18.6 percent in February from a year earlier. That was an improvement from the 19 percent decline recorded for the 12 months to January.

On a monthly basis, a composite index of 20 metropolitan areas fell 2.2 percent, more than expected but less than the 2.8 percent fall in January, raising hopes among some that the housing market might be approaching a bottom.

The U.S. housing market is in its worst crisis since the Great Depression as a huge supply of unsold homes, tighter lending standards and record foreclosures push down prices.

Many potential home buyers have been staying sidelined, waiting for the precipitous drop in prices to mitigate and for the economy to stabilize.

While the declines in residential real estate continued into February, we witnessed some deceleration in the rate of decline in some of the markets, David Blitzer, chairman of the Index Committee at Standard & Poor's, said in a statement.

If home prices are in fact nearing bottom, it has been slow to come and only after many earlier hopes of stabilization proved illusory.

The breakdown of the data remained grim. Of the 20 metro areas, all recorded price drops on a month-on-month and year-on-year basis. Ten areas showed record rates of annual decline.

Historically, compared with their peaks in mid-2006, the 10-city index is down 31.6 percent and the 20-city index is down 30.7 percent. As of February, average home prices across the United States were at levels similar to where they were in the third quarter of 2003.

(Additional reporting by Julie Haviv and Steven C. Johnson; Editing by Dan Grebler)

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