Consumer confidence slips

By Steven C. Johnson

NEW YORK (Reuters) - Consumer confidence weakened in March as higher gasoline prices and recent turmoil in financial markets made Americans nervous about the future, a report showed on Tuesday.

A separate report showed U.S. single-family home prices plummeted in January, the first annual decline in home values in more than a decade.

The Conference Board said its consumer confidence index fell to 107.2 in March, from a downwardly revised 111.2 the prior month, with rising gasoline prices and falling stock prices contributing to the slightly more pessimistic mood.

Economists polled by Reuters expected a reading of 108.5.

The latest report also comes as rising subprime mortgage rates have squeezed high-risk borrowers with weak credit.

"Seven-month highs in gasoline prices, stock market volatility and the ongoing subprime debacle were the likely factors behind the weaker reading," said Ron Simpson, director of currency research at Action Economics in Tampa, Florida.

U.S. stocks extended losses after the report raised doubts about future consumer spending and the dollar slipped against the euro.

Slightly higher consumer concerns about inflation, though, nudged benchmark government bond prices lower.

"We have energy pressures. Over time that is still the one thing that has been a challenge to keeping inflation low. Also it's not unusual when the economy slows for inflation to lag behind that," said Peter Kretzmer, senior economist at Banc of America Securities in New York.

At a conference in Prague on Tuesday, Cleveland Federal Reserve Bank President Sandra Pianalto said the central bank continues to watch closely for signs that inflation does not moderate as much as expected.

The Fed has held interest rates steady at 5.25 percent since August. Financial markets expect the Fed to lower rates later in the year but are unsure when it might occur.

HOUSING SLUMPS, CONSUMERS SPEND

A big factor in that decision is likely to be the health of the U.S. housing market.

The Standard & Poor's/Case-Shiller's home price index for 10 metropolitan areas released Tuesday fell 0.7 percent in the year to January. That was the first year-over-year drop in home values since January 1994.

"The annual declines in the composites are a good indicator of the dire state of the U.S. residential real estate market," Robert J. Shiller, chief economist at MacroMarkets LLC, said in a release.