(Reuters) - Consumer confidence rebounded in March, while home prices rose in January for the eighth straight month according to a closely watched housing index, bolstering hopes for a sustainable economic recovery.

The data on Tuesday came a day after news of further gains in consumer spending as Americans feel more confident about the economy. Consumer participation is critical for the durability of the recovery that started in the second half of 2009.

The confidence data also showed a slight increase in optimism about the labor market, although concerns remain. It comes ahead of a key government nonfarm payrolls report due on Friday that is expected to show the economy added jobs in March.

The consumer report will add credence to the economic recovery school of thought, said Jim Awad, managing director at Zephyr Management in New York.

It's logical that with the economy improving and stocks going up consumer confidence would improve, he said. The real question is what happens next year after the stimulus is removed, but in the short-term this is good news.

The Conference Board, an industry group, said on Tuesday its index of consumer attitudes rose to a reading of 52.5 in March from an upwardly revised 46.4 in February. Analysts polled by Reuters had expected a March reading of 50.0.

Consumers assessment of the labor market improved. The jobs hard to get index declined to 45.8 percent from 47.3 percent, while the jobs plentiful index increased to 4.4 percent from 4.0 percent.

The confidence number should boost expectations for Friday's jobs number because historically the labor differential, which is the difference between jobs plentiful and jobs hard to get, has a strong correlation with the unemployment rate, said Kathy Lien, director of currency research at GFT in New York.

The dollar rose above 93 yen for the first time since early January as the strong consumer data bolstered views the Federal Reserve will raise interest rates ahead of its Japanese counterpart.

U.S. stocks. SPX rose slightly as the data showed more stabilization in the economy. Treasury prices were little changed.

The U.S. Labor Department will release its monthly employment report on Friday. A Reuters survey of economists forecast employers added 190,000 jobs in March after cutting 36,000 positions in February.

The health of the labor market will be a key determinant of when the Federal Reserve will start raising benchmark interest rates, currently near zero.

Chicago Federal Reserve Bank President Charles Evans said on Tuesday that the Fed's monetary policy is still appropriate because of high unemployment and minimal inflationary pressures in the United States.

Investors will get more information on consumer spending on Thursday when U.S. auto sales report are released. Analysts expect automakers to post a sharp jump in March U.S. auto sales, supported by hefty incentives from Toyota Motor Corp (7203.T) (TM.N) as it looked to repair an image tarnished by vehicle recalls.

In another sign of recovery, the Standard & Poor's/Case-Shiller home price indexes released on Tuesday showed prices of U.S. single-family homes rose in January. And the annual rate had its best reading in almost three years, although the year-over-year reading still showed a small decline in prices.

The S&P composite index of 20 metropolitan areas unexpectedly rose by 0.3 percent in January, seasonally adjusted, matching the December increase.

Some analysts cautioned, however, that the strength in the Case-Shiller index contrasts with other measures such as new home sales and LoanPerformance home prices, which have shown deterioration lately.

We believe the picture is one of home prices bouncing around the bottom, a trend that we believe will continue for some time, Michelle Meyer, U.S. economist at Barclays Capital, wrote in a note.

(Additional reporting by Lynn Adler, John Parry, Chris Reese and Ryan Vlastelica; Editing by Kenneth Barry)

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