The index of U.S. leading economic indicators climbed more than forecast in July, and consumer confidence unexpectedly improved this month, signs of sustained expansion in the world's largest economy.

The Conference Board's gauge of the outlook for the next three to six months increased 0.4 percent, the biggest gain since February, after a revised 0.4 percent drop in June, the New York-based group said. The Thomson Reuters-University of Michigan preliminary index of consumer sentiment increased to 73.6 from 72.3 in July.

An improving housing market and fewer firings contributed to the advance in the leading index and may also be boosting confidence, raising the odds that consumer spending will keep advancing after retail sales rose more than forecast last month. At the same time, a rebound in gasoline prices and lingering concerns about Europe and looming changes to U.S. fiscal policy might prevent the recovery from gaining significant speed.

"The economy is not falling off a cliff," said Michelle Girard, senior U.S. economist at RBS Securities Inc., whose sentiment forecast matched the closest among economists surveyed. "The theme of the last couple months with the data has been that, while it's not necessarily improving sharply, the good news is that it is steady."

The Conference Board's index of coincident indicators, a gauge of current economic activity, increased 0.3 percent after rising 0.2 percent in June. The index tracks payrolls, incomes, sales and production -- the measures used to determine the beginning and end of U.S. recessions.

"The economy continues to improve at a very, very modest pace," said John Silvia, chief economist at Wells Fargo Securities, who correctly forecast the increase in the Leading Economic Index. "It should take away some of the recession forecasts."

The consumer sentiment gauge was projected to be 72.2, according to the median forecast of more than 70 economists surveyed by Bloomberg. The index averaged 64.2 during the last recession and 89 in the five years before the 18-month economic slump that ended in June 2009.