NEW YORK (Reuters) - US stocks fell in a choppy session yesterday but showed resilience in the face of Europe’s debt crisis, recovering some of their losses on more encouraging signs from the US economy.

The euro zone’s troubles showed no signs of abating as news that Portugal could be downgraded reignited selling in a high-volume flurry at the close.

Earlier, the S&P 500 had erased much of a one percent loss after improved consumer confidence and manufacturing data.

With Europe engaged in ad hoc crisis management for much of the year, investors are torn between that and signs of US economic strength and below-average equity valuations.

“You do have a bit of a tug of war between those investors who see the environment as positive for equities over the intermediate to long-term (and) traders who are more concerned about the short-term impact of European debt concerns,” said Tim Ghriskey, chief investment officer of Solaris Asset Management in Bedford Hills, New York.

Consumer discretionary stocks were among the better performers after the Conference Board reported US consumer confidence rose to its highest level in five months. Retailer Gap Inc. rose 3.1 percent to $21.36, while Tiffany & Co added 2.4 percent to $62.10.

Improved consumer sentiment as well as stronger US Midwest business activity are the latest in a series of reports that have made investors more optimistic before Friday’s November unemployment report and as the holiday spending season gets under way.

“I think we’ll see a rally into year-end,” said Mr Ghriskey, who is expecting the S&P 500 to rise to 1,225 by year-end.

In another tailwind for stocks, US President Barack Obama said he would attempt to negotiate a deal with Republicans on tax policy in the coming days, potentially opening the way for an extension to breaks on capital gains and dividend taxes.

The Dow Jones industrial average dropped 46.47 points, or 0.42 percent, to 11,006.02.

The Standard & Poor’s 500 Index fell 7.21 points, or 0.61 percent, to 1,180.55.

The Nasdaq Composite Index lost 26.99 points, or 1.07 percent, to 2,498.23.

Global investors increased their exposure to equities in November despite weaknesses on many bourses, while US and British fund managers stepped away from crisis-hit euro-zone bonds, a Reuters asset allocation poll found.

However, reflecting investors’ fear over short-term uncertainty, the CBOE Volatility Index, or VIX, rose 9.3 percent to 23.54.

Investors pushed the euro lower and spreads on bonds of peripheral member states to new highs amid concerns they may ultimately be forced to default.

Amid the economic reports, the S&P/Case-Shiller home prices data was a fly in the ointment. Monthly prices fell more than expected in September and prices from a year earlier rose more slowly than forecast.