NEW YORK - A key gauge of U.S. economic activity fell in July amid fierce stock market gyrations and mounting reports of corporate shenanigans, but the drop wasn't as bad as experts had predicted.

        The New York-based Conference Board on Monday reported its Index of Leading Economic Indicators fell 0.4 percent to 111.7, after falling a revised 0.2 percent in June. Analysts had expected a July decline of 0.5 percent.

        The smaller-than-expected drop helped push stocks higher, sending the Dow Jones industrial average up 213 points to 8,991. The Nasdaq composite index rose 34 points to 1,395.

        Experts said the decline confirmed that the economy is still in a shaky recovery, but they were encouraged that consumers are continuing to buy big ticket items like cars and homes.

        “The economy has run into a soft patch and we are trying to get out of the rut,” said Sung Won Sohn, chief economist for Wells Fargo & Co.

        The index measures where the overall U.S. economy is headed in the next three to six months. It stood at 100 in 1996, its base year. July's decline was the third time in the last four months that the index failed to increase.

        Contributing most to last month's decline were stock prices, the Conference Board said.

        “Volatile financial markets, corporate scandals and sagging consumer expectations are trouble spots,” said conference board economist Ken Goldstein. “But latest evidence shows no significant weakening in the consumer markets, with home and car buying continuing to be strong.”

        Consumers did cut back on discretionary spending such as clothes, travel and meals at restaurants, Mr. Sohn said. There are signs, however, that some discretionary spending may be increasing.

        Home improvement retailer Lowe's on Monday reported a 42 percent increase in second-quarter earnings and raised forecasts for the third quarter that beat analysts' expectations. And shares of

        Toys “R” Us rose after the company narrowed its loss to $17 million in the second quarter.

        “The stock market is improving, and consumers are hitting the malls again,” Mr. Sohn said. “Hopefully even businesses would feel better about future sales prospects to start spending money on capital equipment.”

        Mark Vitner, senior economist with Wachovia Securities, said the heavy car sales are significant because people “worried about their jobs don't go out and buy new cars.”

        “We would look for the numbers to come back in a couple months,” Mr. Vitner said.

        The Conference Board's coincident index, which measures current economic activity, rose 0.1 percent in July to 115.0. The index of lagging indicators, which reflects changes that have already occurred, rose 0.1 percent last month to 100.7.

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