Sentiment among U.S. consumers held steady in January but a slowly improving labor sector and strong equities markets made Americans take a much rosier view of the economy both now and for the future.

Confidence as measured by the University of Michigan (search) rose to its highest since early 2000.

The University of Michigan's gauge of consumer confidence rose to a final reading of 103.8 in January, from December's final reading of 92.6 and 103.2 in early January, market sources who saw the subscription-only survey said. Economists surveyed by Reuters had forecast a final reading of 103.0.

"All three of the gauges of consumer attitudes that we follow (Conference Board (search), University of Michigan, and ABC) improved substantially this month, suggesting that a strengthening economy, favorable geopolitical developments, and a surging stock market are brightening household moods," said Steven Stanley, senior market economist at RBS Greenwich Capital Markets, in Greenwich, Connecticut.

"If the economy actually begins to create a significant number of jobs in the months ahead, confidence should pick up further," he said.

Consumers have become much more upbeat about the economy in the past couple of months as growth forges ahead, removing much of the concern that existed about poor jobs prospects.

"It's a good reading. Anything above 90 is good and above 100 is very good. The (final January University of Michigan consumer sentiment) reading is supportive of expectations for good growth this year," said Cary Leahey, senior U.S. economist at Deutsche Bank Securities.

Meanwhile, the survey's index on consumers' current view of the economy rose to 109.5 in January, from 97.0 in December, while the expectations index rose to 100.1 from 89.8.

The monthly survey is composed from calls to about 500 households. The preliminary survey consists of some 300 responses while the final one includes another 200 responses.

A separate report showed business activity in the Midwest reached its best level since July 1994.

The Chicago Purchasing Management Index (search) rose to 65.9 in January from 59.2 in December, easily beating forecasts for a rise to 62.0.