Consumer confidence in the United States has fallen much more sharply than expected, spelling trouble ahead for the world's largest economy.

You should expect the Fed to cut rates on November 6, probably by 50 basis points

Ram Bhagavatula, Royal Bank of Scotland Financial Markets

Private research group the Conference Board said on Tuesday that its closely-watched consumer confidence index had slumped to 79.4 in October from 93.7 the month before.

The decline was far steeper than expected, with most analysts predicting a more moderate drop to just 89.7.

The Conference Board index, which has fallen for five consecutive months, is now languishing at a nine-year low, below even the level it fell to in the wake of last year's attacks on 11 September.

With consumer spending accounting for about two thirds of all economic activity in the US, the decline in sentiment could potentially derail the country's economic recovery.

Markets slide

The survey unnerved Wall Street investors, with the Dow Jones index of leading US shares falling to 8,230, down nearly 140 points on the day, shortly after the figures were released.

On the currency markets, the dollar fell to its lowest level in two weeks against the euro, and to a three-week low against the yen.

Ominously, the Conference Board data revealed a particluarly sharp decline in US consumers' expectations for the six months ahead, with the future expectations index plunging to 80.7, down nearly 17 points from September.

Lynn Franco, the Conference Board director in charge of the survey, said the slump reflected tumbling share prices, a weak jobs market, and the threat of military action in Iraq.

More rate cuts coming?

Some analysts said the decline, the latest in a series of weak economic indicators, would increase pressure on the US Federal Reserve to cut interest rates next month.

"The dominoes are falling one by one and the consumer is just the latest. You should expect the Fed to cut rates on November 6, probably by 50 basis points," said Ram Bhagavatula, chief economist at Royal Bank of Scotland Financial Markets in New York.

US interest rates are currently at a 40-year low of 1.75% after the Fed slashed borrowing costs aggressively to prop up the economy during last year's global economic downturn.

But rates have been left unchanged for almost a year, with the last cut coming in December 2001.

Other commentators were more sanguine, saying the latest confidence figures reflected the impact of particularly steep stock market falls, and the recent spate of sniper killings in and around Washinton DC.

They also questioned the correlation between consumer confidence surveys and overall economic performance, pointing out that separate figures out in October revealed unusually strong house and car purchases.

The Conference Board survey follows an equally gloomy set of consumer confidence data from the University of Michigan.

The University of Michigan consumer confidence index has also fallen to its lowest level for nine years.