WRAPUP 3-US consumer grim as stagflationary 80s; housing mixed

(Updates markets in paragraph 6)

* U.S. consumer confidence index falls to 28-year low

* Housing starts post biggest gain since January 2006

* Single-family starts at 1991 low, multiple units jump

* Stocks slump on confidence data, Treasury bonds firm

By Burton Frierson

NEW YORK, May 16 (Reuters) - U.S. consumer confidence tumbled to a 28-year low this month as rising prices strained household finances, while another drop in single-family housing starts underscored problems still plaguing the economy.

Friday's reports highlighted worries that the United States could be entering the early days of a period of stagflation like the late 1970s and early 1980s, characterized by a sluggish economy and accelerated price growth.

The data showed consumers' short-term inflation expectations hit a 26-year high, heightening the dilemma facing the Federal Reserve, which has bet that a slow economy will tame prices.