WASHINGTON - Americans are climbing further out of the hole they sank into during the Great Recession.

A stock rally at the end of 2011 helped rebuild more of their lost wealth - a trend that carried into 2012. Households responded by borrowing more for the first time since the financial crisis began, even as their home values fell further.

Americans' wealth rose 2.1 percent to $58.5 trillion in the October-December quarter, the sharpest gain in a year, the Federal Reserve reported Thursday. Still, it would have to rise an additional 13 percent to return to its pre-recession peak.

Driving the gains were stock portfolios, which surged nearly 10 percent in the fourth quarter. And stocks have since risen further. Since early October, the Standard & Poor's 500 index has jumped 24 percent.

Neerja Pahwa is sensing a difference.

Pahwa, a flight attendant and fragrance consultant from St. Louis, still hasn't recouped all the investment losses she suffered during the recession. But she now feels comfortable enough about her finances to eat out and stop by Starbucks more frequently. She recently made a down payment on a retirement home in Florida.

"Things are looking brighter and sunnier," said Pahwa, 64, who hopes to retire next year - if the economy keeps improving. "I don't have too much in my pocket. But I know it's coming. Things are only going to get better."

Household wealth, or net worth, reflects the value of assets like homes, bank accounts and stocks, minus debts like mortgages and credit cards. It bottomed during the recession at $49 trillion in the first quarter of 2009. It's still well below its pre-recession peak of $66 trillion.

The Fed's quarterly report documents most of the financial transactions that occur in the United States.

Greater net worth tends to boost the economy. When people feel wealthier, they typically spend more. Businesses respond by stepping up plans to hire and expand.

Arash Shirazi of Washington, D.C., is spending again after cutting costs during the recession. He says his portfolio has nearly recouped all its losses. Now he's planning to fly to Paris on business and thinking about expanding his music and talent agency.

"Things are getting better," said Shirazi, 37. "I'm not going on vacations or buying new cars. But I'm definitely starting to spend a little more."

Corporations are also wealthier. They held a record $2.2 trillion in cash at the end of the year, up from $ 2.1 trillion at the end of September.

Still, few Americans are seeing any returns on their biggest investment - their home. Home values dropped 1.3 percent in the October-December quarter to roughly $16 trillion. The value of U.S. housing remains nearly 24 percent below where it was when the recession began in December 2007.

The housing market has shown incremental signs of improvement in recent months. It could benefit further if the job market keeps improving.

The economy has added 200,000 net jobs on average from November through January. The unemployment rate has dropped for five straight months to 8.3 percent. Economists estimate that more than 200,000 jobs were added in February, too. The government will release the February jobs report on Friday.

The improved economic outlook has emboldened some people to borrow more. In the final three months of last year, household debt rose at an annual rate of 0.25 percent. It was the first increase since mid-2008.

"Consumers have been more willing to use credit cards for shopping, signaling renewed confidence in their financial and job prospects," said Paul Edelstein, director of financial economics at IHS Global Insight.

That doesn't mean Americans are starting to significantly load up their credit cards again, financial planners and economic analysts say. Credit card debt remains well below its pre-recession level as measured by a separate report released by the Fed this week.

An Associated Press survey of economists last month found that they expect Americans to save gradually less and borrow more, reversing a shift toward frugality that followed the financial crisis and start of the Great Recession.

Roughly half of U.S. households own stocks or stock mutual funds. Stock portfolios make up about 15 percent of Americans' wealth. That's less than housing but ahead of bank deposits, according to the Fed's report.

Most stock wealth is owned by the richest Americans, who also account for a disproportionate amount of consumer spending. Eighty percent of stocks belong to the richest 10 percent of Americans. And the richest 20 percent represent about 40 percent of consumer spending.

In three years, stocks have nearly doubled. Thanks largely to that surge, about 95 percent of people with 401(k) retirement savings plans have more money in their accounts than at the peak of the stock market in October 2007, according to the Employee Benefit Research Institute in Washington. That's largely because of workers' continued contributions to their retirement accounts.

The average 401(k) balance in accounts at Fidelity Investments, the nation's largest 401(k) administrator, rose 8 percent in the fourth quarter. And stock gains this year have likely increased those accounts further.

That doesn't mean people are feeling carefree about their financial situations.

"Many people are surprised their net worth has increased," said Tom McGuigan, a certified financial planner at Oklahoma City-based Burns Advisory Group. "And some aren't even sure it's real yet."