U.S. consumer sentiment surpassed expectations in late August after declining earlier in the month as oil prices eased from record highs and security fears abated, according to sources who saw a survey on Friday.

The University of Michigan's (search) index of consumer sentiment rose to 95.9 in late August from 94.0 earlier in the month, but it was down slightly from 96.7 at the end of July, according to market sources who saw the subscription-only report.

Economists polled by Reuters had expected a reading of 94.0, unchanged from the initial August result.

Consumers showed renewed optimism over the present state of the economy and expectations were slightly less downbeat than they had been at the start of August.

The current conditions component of the University of Michigan index rose to 107.9 from 105.2 in July but it was still below the early August reading of 108.4.

The expectations index dipped to 88.2 from 91.2 last month but was up from 84.7 at the beginning of August.

"The last few months are significantly above the May low (of 90.2) which of course coincided with the high in gasoline prices and I think that is still very much the thing to watch," said Kathleen Stephansen, director of global economics at Credit Suisse First Boston.

"Clearly sentiment fared better in the second half of the month so in order to get to this 95.9 you needed something close to 99.0 (in the second half)," she said.

The University of Michigan's sentiment index is made up each month with calls to about 500 households. The preliminary survey consists of some 300 responses, while the final survey is rounded out at month end with another 200 responses.

Confidence took a knock early in the month as oil prices spiked to new highs and consumers expressed concern about the prospects for the U.S. economy. But with crude oil prices heading lower, analysts had expected some of this pessimism to evaporate, especially as consumers were expressing more confidence in the improvement of the labor market.

The smooth running of the Olympic Games (search) in Athens, with no security threats, also likely contributed to the improvement in sentiment.

Analysts sometimes use sentiment gauges as a way of determining future spending patterns, although there tends to be little correlation between fluctuations in confidence indexes and actual retail sales.