US consumers are acting cautiously

The index dropped to 95.8 in September, down from 95.9 in August, confounding analysts' expectations that it would improve to 96.5.

Consumer spending accounts for 66% of US economic activity and is viewed as a gauge of the health of the economy.

Sales have been erratic in the summer but are still showing an upward trend.

Analysts were looking to the index to see if consumers might be more inclined to spend as the holiday season approaches.

The financial markets showed little reaction to the figures.

"It tells me that for the most part consumer expectations (and) confidence are pretty stable after making a pretty significant rise from the end of 2003," said Steve Gallagher, US chief economist at SG Corporate and Investment Banking.

Data this week showed that sales fell in August as rising energy prices and poor weather kept more shoppers at home.

Interest rate decision

The health of the economy, particularly the prospects for job creation, has become a key issue in the US presidential election, which is likely to be decided in swing-states that have lost manufacturing jobs.

US economic growth weakened in the second quarter and forecasters are trying to figure out whether that softness is the start of a longer-term trend.

The US Federal Reserve raised interest rates by a quarter of a percentage point to 1.5% in August this month, in an effort to curtail inflationary pressures without obstructing economic growth.

The widely-anticipated decision followed June's increase to 1.25%, the first upward move for four years.

There has been growing speculation that the central bank will raise rates again by a quarter of a percentage point next week.