Americans' confidence dropped by the most since Hurricane Katrina two years ago, in the first report to reflect August's credit-market turmoil.

The report underscores the Federal Reserve's concern that risks to the six-year economic expansion have "increased appreciably." A separate report showed home prices suffered the biggest decline since at least 2001.

Property values in 20 metropolitan areas also decreased 3.5 percent in June from a year earlier, according to a separate report published on Tuesday by S&P/Case-Shiller.

"Consumers are obviously paying attention to what's going on and are a little worried by it," said Adam York, an economist at Wachovia Corp. in Charlotte, N.C. "We are not expecting them to spend the way we thought they would a few months ago."

The housing recession is making it harder for Americans to tap home equity to finance the spending that accounts for 70 percent of the economy. A slowdown in hiring and slimmer pay raises may further weaken consumer sentiment and buying power.

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"The things that are weighing on the consumer are getting pretty imposing," said Gregory Miller, chief economist at SunTrust Banks Inc. in Atlanta, which last week announced job cuts. "The equity that he's generated in his house over the years has been undercut" by falling prices.

The consumer confidence index was a seasonally adjusted 105 in August, down 6.9 points from July and the lowest since August 2006, the Conference Board said. The decline was the sharpest point drop since September 2005 following hurricanes Katrina and Rita and in part fueled selling on Wall Street.

But while the data may point to melting consumer sentiment, economists suggest that that doesn't necessarily translate to a meltdown in consumer spending, which accounts for more than two-thirds of all U.S. economic activity.

"The August confidence reading is only slightly below the 105.9 average in 2006, and is well above the 92 average of the prior three 'boom' years of this expansion," economists from Action Economics said in a note to clients.

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