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Confidence declines to lowest since February

NEW YORK (Reuters) - U.S. consumer confidence fell to its lowest level in seven months in September, underscoring lingering worries about the strength of the economic recovery.

But in a sign of stabilization in the housing market, U.S. home prices hovered above multi-year lows without the help of the homebuyer tax credit that ended in April.

The day’s data is the latest to give a mixed signal on the economy, with a 9.6 percent unemployment rate and still-tight access to credit among factors hurting consumers and keeping concerns about a double-dip recession alive.

“With unemployment at a 26-year high, confidence among consumers remains weak. This decline in sentiment will give the Fed a stronger reason to increase stimulus in November,” said Kathy Lien, director of currency research at GFT in New York.

The Federal Reserve said last week it was prepared to put more money into the economy, if needed, to stimulate the recovery and avoid deflation.

The Conference Board’s index of consumer attitudes fell to 48.5 in September from a revised 53.2 in August, pressured by a weak labor market and environment for companies.

That was below the median of forecasts from analysts polled by Reuters, which was for a September reading of 52.5. The August reading was revised down slightly from an original 53.5.

The report also showed inflation expectations eased slightly, even with the Fed’s stance on the economy.

U.S. stocks .SPX initially extended declines following the confidence data, but ended the day higher as investors snapped up some of the month's better-performing sectors. <.N

Shoppers look at washers and dryers at a Home Depot store in New York, July 29, 2010. REUTERS/Shannon Stapleton

Though weak stock market prices weighed on consumer morale, the benchmark Standard & Poor’s 500 index is on track to rise 9.4 percent in September after a 4.7 percent decline last month.

“Consumer confidence is being sapped by high unemployment, low equity prices and now a renewed decline in house prices. This all suggests that the outlook for consumption growth remains ominous,” said Paul Dales, a U.S. economist at Capital Economics in Toronto.

The 30-year Treasury yield fell nearly 7 basis points to 3.66 percent, its lowest in about three weeks, while the dollar slumped against the euro.

At the same time, gold rose to a fresh record high as reports fueled views the central banks would stimulate the economy with new liquidity.

The Standard & Poor’s/Case-Shiller data showed U.S. home prices declined in July.

The index of 20 metropolitan areas was down 0.1 percent in July from June on a seasonally adjusted basis, as expected in a Reuters poll. But it followed a 0.2 percent June rise, which was revised down from a 0.3 percent increase.

BUSINESS OUTLOOK WEAKENS

Last Friday the Thomson Reuters/University of Michigan’s preliminary September reading on U.S. consumer sentiment was worse than expected and at the weakest level in more than a year.

In another sign of concerns over the outlook for the U.S. economy, a U.S. Business Roundtable survey found the number of CEOs who expect their companies’ sales and U.S. headcount to rise over the six months declined in September.

The Business Roundtable’s CEO Economic Outlook Index declined to 86 in September from 94.6 in June.

In contrast to U.S. sentiment indicators, overseas data Tuesday showed the consumer mood in Germany and Italy improved and French consumer spending rose during the summer.

President Barack Obama, who is traveling across the United States this week to try to drum up voter enthusiasm ahead of the November U.S. congressional elections, signed a $30 billion small business lending bill into law on Monday.

With worries about the economy in the forefront, opinion polls suggest the November 2 mid-term elections could result in the Republicans wresting control of Congress from the Democratic Party.

HOME PRICES UP VERSUS YEAR AGO

S&P, which publishes the home price indexes, also said home prices in the 20 cities index rose 3.2 percent from July 2009, a slower annual pace than the 4.2 percent increased in June.

Data last week showed new home building rose in August and sales of previously owned houses crawled off a 13-year low.

Analysts have been watching for signs of stability in the housing market after declines seen with the end of a tax credit for home buyers in April.

“People are still waiting to get a set of numbers that has absolutely none of the government incentive in it for home buyers. From what I was able to gather, we are a couple of months away from that,” said Peter Jankovskis, co-chief investment officer at Oakbrook Investments LLC in Lisle, Illinois.

Additional reporting by Lucia Mutikani, John Parry, Wanfeng Zhou, Lynn Adler, Scott Malone and Charles Mikolajczak; Editing by Andrew Hay and Diane Craft

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