A key gauge of consumer sentiment rose for the third straight month in December, market sources said Friday, as an improved stock market and hopes for economic recovery overshadowed concerns about job cuts.

The University of Michigan's closely watched consumer sentiment index rose to 88.8 in December from 83.9 in November. That was higher than consensus forecasts of a reading of 85.7 and was well above the index's recent low of 81.8, struck in September. The preliminary December reading was 85.8.

Economists closely watch the sentiment index for clues about consumer behavior. Consumer spending underpins about two-thirds of U.S. economic activity and is critical during the holiday shopping season. The index is down sharply from a peak of 112.0 in early 2000 but is clawing its way back to pre-Sept. 11 levels. Sentiment read 91.5 in August.

The current conditions index, which gauges consumers' attitudes about their present financial situation, edged up to 99.0 in December from 95.3 in November. The preliminary reading for December was 95.9. The expectations index, which tracks consumer attitudes about the next 12 months, spiked up to 82.3 in December from 76.6 in November. The preliminary December reading was 79.3.

The consumer sentiment survey is based on telephone interviews with roughly 500 Americans across the country on personal finances, business conditions and buying conditions.