NEW YORK (CNNfn) - A report showing sinking consumer confidence sent U.S. stocks tumbling Tuesday amid worries that one of the economy's last strongholds, retail sales, could crack.
The Conference Board, a private research group, said its index of consumer sentiment fell to a four-month low in August, surprising economists, who expected gains.
Stocks, which opened flat, began falling after the data's mid-morning release. In a broad selloff, only two stocks among the 30 Dow Jones industrial average components rose.
"This number is clearly the basis for our weakness," said Bryan Piskorowski, market commentator with Prudential Securities. "The economy's recovery has hinged on consumer strength, so this number becomes more significant."
Sun Microsystems fell after Goldman Sachs cut its quarterly and full-year earnings forecasts. And office furniture maker Herman Miller joined hundreds of other companies in saying that financial results could fall short.
But Wall Street focused more on the weakening consumer sentiment numbers, which came one day after other data showed surprise slowing in the housing market. The market's two days of losses wiped out most of the big gains from Friday, as Wall Street once again proved unable to sustain an advance.
"It's another reason to sell the market," Patrick Boyle, head financial trader at Credit Suisse First Boston, told CNNfn's The Money Gang, referring to the confidence numbers. "What this market really needs is a reason to buy it."
The Nasdaq composite index dipped 47.43 points, or 2.5 percent, to 1,864.98, while the Dow industrials shed 160.32, or 1.5 percent, to 10,222.03. The Standard & Poor's 500 index declined 17.70, or 1.5 percent, to 1,161.51.
More stocks fell than rose. On the New York Stock Exchange, declining issues beat advancing ones 1,874 to 1,231 as 969 million shares traded. Nasdaq losers trounced winners 2,308 to 1,343 as 1.4 billion shares traded.
In other markets, Treasury securities rose. The dollar rose against the yen and was flat versus the euro.
Dour feelings
After gaining in April and May, retail sales have held steady this summer, keeping alive hopes that the economy can avoid recession.
But in a development that could change that, the Conference Board's index of consumer sentiment fell to 114.3 from a revised 116.3 in July.
Economists expected a rise in consumer confidence in August, a month when energy prices fell, mortgage rates eased and the government was mailing out some of the $38 billion in tax refund checks.
But August also saw rising layoff announcements and sinking stock prices. That may have darkened sentiment.
"This will offer some partial restraint to consumer spending," Steven Wood, economist at FinancialOxygen, said of the confidence numbers.
Still, a closer look at the report reveals a potential silver lining; the expectations index rose, a sign that consumers are also hopeful going forward.
Another important economic number comes Wednesday when the government releases revised data on second-quarter gross domestic product. Economists forecast that GDP could post its first quarterly contraction in more than eight years.
Sun Microsystems (SUNW: down $0.94 to $13.56, Research, Estimates), a stock that has tumbled as much as 80 percent from its 52-week high, fell anew after Goldman Sachs cut earnings estimates for the server maker.
The Goldman analyst, Laura Conigliaro, now expects Sun's profit to come in at 1 cent per share in the current quarter, down from 2 cents.
Merrill Lynch cut office furniture maker Herman Miller's (MLHR: down $0.54 to $23.23, Research, Estimates) fiscal year 2002 earnings estimates to 64 cents per shares from $1.50. The company lowered its quarterly earnings guidance late Monday.
Among gainers, power wholesaler Enron (ENE: up $0.40 to $38.16, Research, Estimates) appointed Greg Whalley to succeed departed President and CEO Jeff Skilling as president.
Xerox Corp. (XRX: up $0.30 to $9.44, Research, Estimates) rose after Salomon Smith Barney reiterated its "outperform" rating and $12 price target.
Dow components AT&T (T: up $0.14 to $19.20, Research, Estimates) and Philip Morris (MO: up $0.09 to $47.60, Research, Estimates) were the only members of that index to rise. The Dow's biggest losers included Procter & Gamble (PG: down $1.85 to $74.99, Research, Estimates) and IBM (IBM: down $1.91 to $104.95, Research, Estimates).
The day's declines widened the Nasdaq's losses on the year to 24 percent. A broader index, the S&P 500, is now off 12 percent in 2001.
The months of losses come despite one of the Fed's most aggressive rate-cutting campaigns on record. Central bankers cut borrowing costs seven times this year.
But that won't be enough to turn around profits in the near term. Earnings at America's largest companies are expected to fall this year for the first time in a decade.
"We keep trying to see a consensus for when things will bottom out," Prudential's Piskorowski said. "But then we keep getting these numbers that would seem to undermine that." 
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