The consumer data also showed a slight increase in optimism about the labor market. It comes ahead of a key government nonfarm payrolls report due on Friday that is expected to show the economy added jobs in March.
The Conference Board, an industry group, said on Tuesday its index of consumer attitudes rose to a reading of 52.5 in March from an upwardly revised 46.4 in February.
The median of forecasts from analysts polled by Reuters was for a March reading of 50.0.
The expectations index rose to 70.2, from a revised 62.9. The present situation index rose to 26.0, the most since May 2009, up from a revised 21.7 in February.
This consumer report will add credence to the economic recovery school of thought, said Jim Awad, managing director at Zephyr Management in New York.
It's logical that with the economy improving and stocks going up consumer confidence would improve, he said. The real question is what happens next year after the stimulus is removed, but in the short-term this is good news.
On Wall Street, stocks <.DJI> <.SPX> initially rose on the news, but later turned negative as shares of financial and energy companies slipped. U.S. Treasury prices erased initial losses as stocks fell, although they remained under pressure as investors prepared for a fresh supply announcement.
The dollar extended gains against the yen, rising briefly above 93 yen for the first time in nearly three months as the strong consumer data bolstered views that the Federal Reserve will raise interest rates ahead of its European or Japanese counterparts.
Consumers assessment of the labor market improved, according to the Conference Board. The jobs hard to get index declined to 45.8 percent from 47.3 percent, while the jobs plentiful index increased to 4.4 percent from 4.0 percent.
The U.S. Labor Department will release its monthly employment report on Friday. A Reuters survey of economists forecast that employers added 190,000 jobs in March, largely driven by hiring for the 2010 census, after cutting 36,000 positions in February.
That would mark only the second time payrolls have increased since the recession started in December 2007. The health of the labor market will be a key determinant of when the Fed will start raising benchmark interest rates, currently near zero.
The confidence number should boost expectations for Friday's jobs number because historically the labor differential, which is the difference between jobs plentiful and jobs hard to get, has a strong correlation with the unemployment rate, said Kathy Lien, director of currency research at GFT in New York.
Lien cautioned, however, that the forecasts for payrolls are very high and I believe that there is strong risk of a disappointment.
Separately, the Standard & Poor's/Case-Shiller home price indexes released on Tuesday showed prices of U.S. single-family homes rose in January. And the annual rate had its best reading in almost three years, although the year-over-year reading still showed a small decline in prices.
The S&P composite index of 20 metropolitan areas unexpectedly rose by 0.3 percent in January, seasonally adjusted, matching the December increase.
On an unadjusted basis, prices declined 0.4 percent in January. S&P has said that foreclosures can skew the seasonal adjustments.
The median forecasts from Reuters surveys were for a 0.3 percent drop for the adjusted index and a 0.2 percent decline for the unadjusted index.
It looks like there is an underlying recovery in house prices going on. The numbers are in line with market expectations and a bit stronger than my expectations and I would say, broadly speaking, this is quite encouraging for the housing market, said David Sloan, economist with 4CAST Ltd in New York.
(Additional reporting by Lynn Adler, John Parry, Chris Reese and Ryan Vlastelica; Editing by Leslie Adler)