U.S. consumer sentiment stabilized in early August as Americans' slightly more wary outlook about the economy was offset by a more upbeat mood about conditions right now as the stock market recovered from five-year lows in July.

"The situation in the equity markets and corporate accounting has stabilized since July, so it is perfectly reasonable for sentiment to stabilize as well," said Patrick Fearon, economist at A.G. Edwards & Sons in St. Louis.

The University of Michigan consumer sentiment index fell modestly to 87.9 in early August, compared with a final 88.1 in July, market sources said Friday, holding at its lowest level since November. The index's drop was a tad lower than economists' forecasts for a mild rise to 88.3.

Analysts are closely watching indexes of consumer confidence for clues on whether consumer spending, which drives about two-thirds of the economy, will maintain its strength. So far spending has held up despite a slide in sentiment.

Stocks traded a bit above their lows of the session after the data were released while U.S. Treasury securities, which had rallied strongly before the number, came off their highs. The dollar firmed against other major currencies.

Consumer confidence took a turn for the worse this summer as the broad stock market plummeted to five-year lows on worries about corporate scandals, shoddy accounting and a start-and-stop economic recovery. But analysts were upbeat about an improvement in sentiment in coming months.

"If the equity markets remain relatively healthy and no new shocks like another accounting scandal occur, the index could in fact increase," Fearon said.

The preliminary August current conditions index, which tracks consumers' views about their present financial situation, rose to 100.2 from 99.3 in July.

The expectations index, which measures attitudes about the 12 months ahead, edged one point lower to 80.0 in August from 81.0 in July.

"Looking forward, consumers remain cautious in their outlook," said Lynn Reaser, chief economist at Banc of America Capital Management. "But with consumer confidence stabilizing, income rising and an improving stock market, consumers should be spending at a moderate pace."

The preliminary University of Michigan consumer sentiment survey is based on telephone interviews with roughly 300 Americans across the country on personal finances and business and buying conditions. It is rounded out to 500 calls by month's end.