By Leah Schnurr
NEW YORK (Reuters) - Consumer confidence plunged in August to its lowest level since the 2007-2009 recession, after a bruising battle over the U.S. budget slammed stock prices and pushed the nation to the brink of default.
Tuesday's data kept alive concerns the nation could slide back into a recession and spurred investors to buy government bonds on bets the U.S. Federal Reserve would try something new to help growth.
"What we are effectively going through is a crisis of confidence," said Tom Porcelli, an economist at RBC Capital Markets in New York.
The private-sector Conference Board said its index of consumer attitudes sank to 44.5, its weakest since April 2009, from a downwardly revised 59.2 the previous month.
Economists had expected a much-less-pronounced decline.
Consumers' flagging confidence might lead them to shut their wallets, although retail sales data has not pointed in that direction yet.
The United States lost its AAA credit rating earlier this month following a drawn-out battle in Congress over spending that nearly led the country to default on its obligations.
The data weighed on U.S. stock prices, which have taken a beating in recent weeks, while prices of U.S. Treasury securities rose.
So far, data from industrial production to employment have been consistent with a slow-growth scenario rather than an outright contraction in economic output. But economists are watching closely for signs of a fresh downturn and will focus sharply on Friday's August jobs report.
"There is basically nothing for consumers to be confident about," said Gennadiy Goldberg, a fixed income analyst at 4CAST in New York.
Concern over the outlook led the Fed earlier this month to say it would hold interest rates at rock-bottom levels for at least the next two years.
While that decision drew three dissents, some officials at the central bank favor doing more to bring down joblessness.
Friday's jobs report is expected to show the unemployment rate held at 9.1 percent in August.
The Conference Board's index on the difficulty of finding a job rose in August to its highest level since November 2009.
Chicago Federal Reserve Bank President Charles Evans, who is considered to be less focused on inflation risks than some of his colleagues, said on Tuesday he favored strong central bank accommodation for a substantial period of time.
"It's difficult to characterize the labor market as anything other than consistent with being in a recession," he told CNBC television. "I'm in favor of some of the most aggressive policy actions of anyone on the committee.
However, another official, Minneapolis Fed President Narayana Kocherlakota, suggested he did not see a compelling case for further central bank action.
HOME PRICES WEAK
A separate report showed U.S. single-family home prices fell slightly in June, the latest sign the economy's recovery will not be able to count on help from the housing sector.
The S&P/Case-Shiller composite index of 20 metropolitan areas slipped 0.1 percent from the previous month on a seasonally adjusted basis. A Reuters poll of economists had expected prices to be unchanged.
An excess supply of homes, ongoing foreclosures, tight credit and weak demand have kept the housing market on the ropes and helped to mute the broader economic recovery.
"Basically this is just more confirmation that housing is moving sideways," said Brian Jones, an economist as Societe Generale in New York.
Prices in the 20 cities fell 4.5 percent from a year ago, better than expectations of a 4.6 percent decline.
(Additional reporting by Emily Flitter; Writing by Jason Lange in Washington; Editing by Neil Stempleman and Dan Grebler)
