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Icy Economic Data Freeze Investors

The Chicago PMI and consumer confidence are both weaker than expected.
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Updated from 11:12 a.m. EDT

Two grim economic reports threw ice water on investors' hopes for an orderly recovery Tuesday, sending the major averages reeling.

The Chicago Purchasing Managers index fell to 51.2 in September from 58.9 the previous month. The figure has been above 50, indicating that business is expanding for factories in the region, for five consecutive months. Economists were expecting a reading of 57.

Separately, the Conference Board reported its consumer confidence gauge fell to 76.8 this month from a revised 81.7 in August. The indicator is now at its lowest level since March, at the end of the Iraq War. Economists had expected a much less dramatic decline to 80.5.

"The numbers were certainly disappointing, but hardly a final word," said Jim O'Sullivan, chief U.S. economist at UBS Warburg. "The Chicago index is very volatile, so I am reluctant to extrapolate on it. We should wait for the ISM index tomorrow to see whether it will confirm a similar pattern."

The National Association of Supply Management will release its ISM index on Wednesday, and economists expect manufacturing at a national level to have risen slightly to 55 in September from 54.7.

Within the PMI components, new orders and production both rose to 53.2 and 55.8, respectively. Elsewhere, the employment gauge fell back to 45.3 from 51.2 in August.

Following the report, the benchmark 10-year note rose 31/32, pushing its yield down to 3.96%.

In recent trading the

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Dow Jones Industrial Average

was down about 103 points to 9276, while the

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was losing 28 points to 1795.

"As for the consumer confidence, the job market perception is still pretty negative and a big part of the story. But future expectations of 88.4 are still high, which could support healthy growth in consumption," said O'Sullivan.

The index of consumers' sentiment about conditions six months from now fell to 88.4 from 94.9. The index measuring attitudes about current economy conditions dropped to 59.5 from 62.

Americans became more fearful about the economy's ability to generate new jobs in September. Respondents who considered jobs hard to find rose to 35.3%, the highest level since December 1993.

In fact, the economy has shed jobs for seven straight months, and cuts are expected to have continued in September. The Labor Department releases its unemployment report for the month on Friday.

But despite weaker sentiment, consumers continued to spend in August, with consumption rising 0.8% in the month, according to a Commerce Department report Monday. The two figures follow a report from the University of Michigan last week that showed consumer confidence fell to 87.7 from 89.3.