Consumer confidence in the United States dropped for the second consecutive month in August, according to new figures, released yesterday.

The evidence that American consumers, who drive two-thirds of the US economy, are growing more pessimistic about the future prompted an immediate sell off on Wall Street.

The Dow Jones plunged by over 100 points in the hour following its release. At the close it was down 160.32, on 10,222.03. The New York-based Conference Board said its consumer confidence index fell to 114.3, down from a revised 116.3 in July.

The index is based on a monthly survey of some 5,000 US households, and compares results to its base year, 1985, when it stood at 100. The drop followed two consecutive gains in May and June and is at the lowest level since the index hit 109.9 in April.

The unexpected fall in confidence shows Americans are increasingly worried about a lack of jobs and unemployment and it may presage a dangerous deterioration in retail spending, the one sector of the economy which has withstood the downturn.

Analysts will now be watching closely today's revised figures for growth in the second quarter. They are expected to be revised down from 0.7 per cent to 0.1 per cent. Any lower figure would mean that the US economy is moving towards recession, loosely defined as two successive quarters of negative growth.

"The deteriorating US job market dampened consumer spirits this month," said Lynn Franco, director of the Conference Board's consumer research centre.

"The nation's employment and unemployment numbers now bear watching, since continued weakness in the job market could translate into slower consumer spending."

While above its recent low of 109.2 in February and far above lows struck during the last US recession in 1991, the fall in consumer confidence took Wall Street by surprise, especially after reports that the housing market was showing stubborn resilience. On Friday the Commerce Department said sales of new homes surged 4.9 per cent in July and on Monday the National Association of Realtors said existing home sales had slowed but remained near historic highs.

The consumer confidence report will reinforce expectations in the market that the Federal Reserve, which has reduced interest rates seven times this year, will cut rates again shortly to ward off recession.