Consumer sentiment rebounded last month following an unexpected drop in February, driven by optimism about the Republic's jobs market.

Figures released yesterday by IIB and the Economic Social Research Institute show that people are feeling more confident about their current and future economic situations. The consumer sentiment index rose to 104.2 in March from 99.5 in February.

The rebound doesn't fully reverse February's 7.3 percentage point drop, and shows that while confidence is improving, consumers remain cautious, Austin Hughes, the bank's chief economist, said.

While all five main elements of the sentiment survey improved in March, the two relating to a household's own financial situation improved only modestly, a factor Mr Hughes attributes to increased energy costs and modest wage growth.

"Together these constraints mean that in spite of relatively low inflation, 'real' spending power isn't rising particularly fast at present," he said.

"In contrast, Irish consumers were notably more positive in the jobs market."

The number of respondents who fear unemployment will rise in the next 12 months fell sharply in March to 38 per cent, from 43 per cent in February. The improved job outlook is also influencing sales of so-called "big ticket" items, the survey showed, with more consumers willing to borrow to purchase items such as furniture, lighting or do-it-yourself materials.

Long-term optimism about the economy also boosted car sales, with a 14 per cent increase in the first three months of 2005, compared to the same period last year.

"The message coming from the consumer sentiment data might be interpreted as indicating that while consumers are becoming increasingly confident, the prevailing tone is still one of cautious optimism," Mr Hughes added.

The more positive Irish outlook contrasts with similar surveys carried out in other countries, including the US, Germany, France and Italy, where consumer confidence declined in March.