May 19 (Bloomberg) -- The index of leading U.S. economic indicators rose in April for a second month, the first back-to- back gain since October 2006, signaling that the current slowdown will be short-lived.

The Conference Board's gauge increased 0.1 percent, better than forecast and matching the gain in March, the New York-based research group said today.

The measure points to the direction of the economy over the next three to six months. The dollar rallied after the figure spurred speculation that tax rebates and the Federal Reserve's interest-rate cuts will aid a recovery in the second half.

Economists estimate the economy will expand just 0.1 percent this quarter as consumers rein in spending in the wake of falling house prices and a surge in fuel costs.

``The message on the economy is that activity is soft but not moving down sharply,'' said Michael Moran, chief economist at Daiwa Securities America Inc. in New York, who accurately forecast the index's gain.

``The economy is muddling along.'' The dollar gained to $1.5497 per euro at 4:14 p.m. in New York, from $1.5577 at last week's close. The Standard & Poor's 500 stock index rose 0.1 percent to close at 1426.6.

The index was forecast to be unchanged, according to the median estimate of 53 economists surveyed by Bloomberg News. Projections ranged from a drop of 0.6 percent to a 0.2 percent rise.

The increase in March was the first gain since September. Recession Threshold A decline in the index of around 4 percent to 4.5 percent at an annual pace over six months is one signal a recession is imminent, according to the Conference Board.

The gauge met that requirement in January, when it dropped at a 4.7 percent pace.

``The small increases in the leading index in both March and again in April could be a signal that the economy may not weaken further,'' Ken Goldstein, a Conference Board economist, said in a statement.

Six of the 10 indicators in today's report contributed to the gain in the index, led by rising stock prices and a widening spread between the Fed's benchmark rate and the yield on the 10- year Treasury note, also known as the yield curve.

``This particular slump seems to be milder than any recession since the Great Depression,'' John Lonski, chief economist at Moody's Investors Service, said in an interview with Bloomberg Television in New York.

Worst Has Passed Treasury Secretary Henry Paulson and Wall Street chief executive officers including Vikram Pandit of Citigroup Inc. and Jamie Dimon of JPMorgan Chase & Co. are among those who have judged the worst of the credit crisis has passed.

Corporate bond sales have climbed to a record and the cost of protection against default on debt sold by investment banks has receded since March. Still, Myron Scholes, chairman of Platinum Grove Asset Management LP and 1997 winner of the Nobel Prize in economics, said last week it's unclear whether the improvement my be just the ``eye of the storm.'' Scholes said in an interview with Bloomberg Radio that ``we don't know if the storm has passed.''

A slump in consumer expectations about the economy and a decline in manufacturing hours were among the components that restrained the index. The S&P 500 rose 1.2 percent over the month after reaching a 19-month low in early March.

Growing Pessimism The Reuters/University of Michigan sentiment index decreased in April to a 26-year low, while its expectations gauge fell to the lowest level since 1990.

The measure of prospects dropped even more this month, sending sentiment to a 28-year low, the group reported last week. ``The generally poor economic outlook, including well-known housing pressures, rising food and fuel prices and a more negative employment picture eroded consumer confidence and impacted discretionary purchases for the home,'' Robert A. Niblock, chief executive officer at Lowe's Cos., the world's second-largest home-improvement retailer, said today in a statement.

Mooresville, North-Carolina-based Lowe's said first-quarter profit fell and forecast more declines for the year as the worsening housing slump slowed spending on remodeling.

Less Equity The real-estate recession is also hurting manufacturing as owners can no longer count on tapping increases in home equity to buy cars or furniture. Auto sales in April slid to a 14.4 million annual rate, the lowest since 1998, according to industry figures. Manufacturing output fell 0.8 percent in April, the most in 2 1/2 years, the Fed said last week.

While economists forecast growth will pick up later this year, the rebound may not be vigorous. The economy will grow at a 1.2 percent rate for all of 2008, compared with a 2.2 percent pace in 2007, according to the median estimate of economists surveyed this month.

After growing at a 0.5 percent annual pace this quarter, the weakest in 17 years, consumer spending will rise 2.3 percent in the third quarter as the bulk of the rebates is spent, according to the survey. Spending, the biggest part of the economy, may then slow once again in the last three months of the year.

Falling home prices, mounting job losses and soaring prices for food and fuel will continue to threaten American consumers for much of the year. Harvard University economist Martin Feldstein, a member of the committee that determines when contractions begin and end, said in a Bloomberg Television interview May 6 that the economy was ``sliding into a recession.''

Recession Defined The Cambridge, Massachusetts-based National Bureau of Economic Research that Feldstein heads defines recessions as a ``significant'' decrease in activity over a sustained period of time. The declines would be visible in gross domestic product, payrolls, production, sales and incomes.

In November 2001, the NBER affirmed that a recession had begun eight months earlier. The Conference Board's index of coincident indicators, a gauge of current economic activity, was unchanged in April for a second month.

The index tracks payrolls, incomes, sales and production. The gauge of lagging indicators rose 0.1 percent after gaining 0.4 percent the prior month. The index measures business lending, length of unemployment, service prices and ratios of labor costs, inventories and consumer credit.

To contact the reporter on this story: Bob Willis in Washington This e-mail address is being protected from spambots. You need JavaScript enabled to view it