Americans shook off some of their concerns about the economy this month but a surprise fall in house prices in September underscored the weak foundations of the recovery.

Consumer sentiment rebounded in November from a 2-1/2-year low last month and U.S. retailers reported strong sales as the holiday shopping season got off to a positive start last week.

The Conference Board said on Tuesday its index of consumer attitudes jumped to 56.0 from 40.9 in October, hitting the highest level since July and handily topping economists' forecasts for 44.0.

This is a huge rise in consumer confidence. It gets us back to second-quarter levels and further underscores the dramatic move that we've seen in consumer spending, said Lindsey Piegza, economist at FTN Financial in New York.

Still, the confidence index remains historically low and is well below a recent peak of 72.0 in February.

Americans worried less about jobs and their income. A measure of how hard jobs are to get fell to its lowest since January 2009 at 42.1 percent. Expectations of income increases in the next six months rose to 14.9 percent from 11.1 percent.

Consumer confidence took a hit in recent months after political gridlock in August pushed the United States close to a debt default, worries grew about another U.S. recession and the euro zone debt crisis deepened.

The cutoff date for the latest survey was November 15, before the failure of a congressional committee charged with tackling the U.S. budget deficit.

While fears of recession have ebbed, analysts warn the economy remains sensitive to shocks, particularly the risk of fallout from the euro zone debt crisis.

It's a conflicted environment, said Paul Ballew, chief economist at Nationwide Insurance in Columbus, Ohio.

The underlying readings on the U.S. recovery are a bit stronger than what some people feared, but that's offset by the looming concerns of what we're seeing in the headlines and what's playing out primarily in Europe.

The sentiment data helped push U.S. stocks <.DJI> higher, while fears over Europe moderated for the time being and investors dipped back into risky assets.

Euro zone ministers on Tuesday were expected to approve detailed plans to bolster their bailout fund to help prevent contagion in bond markets.

The Federal Reserve has kept U.S. interest rates near zero since late 2008 and has bought more than $2 trillion in long-term securities to boost the economy. The central bank's influential vice chair, Janet Yellen, said on Tuesday the Fed has room to ease monetary policy further.

Retailers reported a strong start to the holiday season. The International Council of Shopping Centers said sales rose 1.7 percent last week, the biggest gain since June, while the Johnson Redbook Index of large merchandise retailers showed sales rose 5.4 percent last week from a year earlier.

HOUSING FRAGILITY

Separate data on Tuesday showed the beleaguered U.S. housing market is still struggling to get back on its feet. The S&P/Case Shiller composite index of 20 metropolitan areas for September fell 0.6 percent from August on a seasonally adjusted basis. Economists had predicted no change.

Prices in August were also revised to show a decline of 0.3 percent after originally being reported as unchanged.

The index had leveled off in recent months and analysts are hoping the market is at least stabilizing.

Even so, prices are expected to stay weak into 2013 or longer, given the large number of homes still likely to come up for sale even as buyers stay on the sidelines.

Home prices are back at 2003 levels, the report said, and 15 of the 20 metro areas saw monthly price declines on a seasonally adjusted basis.

I don't know what will happen, but I don't see any reason to predict the recovery now, Yale economics professor and index co-founder Robert Shiller told Reuters Insider.

At best we can hope that it doesn't overshoot. We're back down to kind of normal levels for home prices, but after our crisis, they could overshoot and become cheap overall.

Home equity is a major source of wealth for Americans.

Compared to a year earlier, prices in the 20 cities were down 3.6 percent in September, slowing from a year-over-year decline of 3.8 percent the month before.

In contrast, a separate index from the U.S. Federal Housing Finance Agency, showed home prices rose 0.9 percent in September and were down just 2.2 percent from a year ago.

The index is calculated using purchase prices of houses financed with mortgages that have been sold to or guaranteed by Fannie Mae or Freddie Mac .

There was some other positive housing news. The number of homeowners who are 'underwater' on their mortgages -- meaning they owe more than their home is worth -- decreased modestly in the third quarter, though levels remained high.

Data analysis firm CoreLogic said the number of properties with such 'negative equity' was 10.7 million, or 22.1 percent of all residential properties with a mortgage, a slight fall from the second quarter.

As the housing market struggles to recover, the large number of homeowners who are underwater has prompted concerns of more foreclosures to come if borrowers become unable to keep up with their payments or decide to walk away.

(Reporting by Leah Schnurr; Additional reporting by Emily Flitter in New York, Jason Lange in Washington and Ann Saphir in San Francisco; Editing by James Dalgleish)

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