NEW YORK (AP) - A surprise drop in consumer confidence tripped up investors yesterday, a day after two corporate takeovers set off a steep market rally.

Stocks fell after the Conference Board said its consumer confidence index fell to 53.1 in September. That was down from 54.5 in August and much lower than the reading of 57 that economists had been expecting.

The private research group attributed the drop to concerns about the labor market, saying consumers are still worried about losing their jobs. Consumer confidence has been a focus for the stock market in recent months, and many analysts warn a turnaround in the economy will not hold if consumers do not start picking up spending and employers add jobs.

The report offset early enthusiasm over a third straight monthly increase in home prices.

Stocks broke a three-day losing streak on Monday after news of several big acquisitions signaled to investors that corporate America is feeling more confident about the economy and willing to take on more risk. The disappointing decline in consumer confidence yesterday was a stark reminder that American consumers aren't as upbeat, meaning they are likely to keep their spending in check.

"You had these M&A deals make people feel better about growth prospects and valuations," said Nick Kalivas, vice-president of financial research and senior equity index analyst at MF Global. "We don't have any followthrough M&A today and the market really lacks a forward catalyst."

With economic data still largely mixed, investors cannot seem to find enough reasons to extend the market's nearly seven-month long advance, or at least keep it going at the same fervid pace. The benchmark Standard & Poor's 500 index has gained 57.1 percent since hitting a 12-year low in March.

"Stock have been moving aggressively up," said Lawrence Creatura, portfolio manager at Federated Clover Investment Advisors. "It's natural for investors to want to lock in some of those gains as we end the quarter."

According to preliminary calculations, the Dow Jones industrials fell 47.16, or 0.5 percent, to 9,742.2, chipping away part of Monday's 124-point gain. The S&P 500 index slipped 2.37, or 0.2 percent, to 1,060.61, and the Nasdaq composite index fell 6.7, or 0.3 percent, to 2,124.04.

Falling stocks narrowly outpaced those that rose on the New York Stock Exchange, where volume came to 1.2 billion shares, compared with 979 million shares on Monday. Trading was light at the start of the week because of the Jewish holiday Yom Kippur.

In other trading, the Russell 2000 index of smaller companies fell 2.77, or 0.5 percent, to 610.45.

Stocks jumped on Monday as news of large takeovers by Xerox Corp. and Abbott Laboratories brought hope that corporate dealmaking could be making a comeback. That would be a big positive not only for the economy but also for the stock market as investors try to figure out which companies could become acquisition targets. But the disappointing consumer confidence report was a stark reminder that the consumer isn't as upbeat about the recovery.

Analysts have been saying that some pullback in stocks is healthy considering how far and how fast the market has risen. But so far, any breaks in the advance have been fairly mild and brief, as investors who do not want to miss an opportunity to join in the market's climb higher keep the momentum going.

"There hasn't been any followthrough on those down days," said Howard Ward, portfolio manager at GAMCO Growth Fund, whose portfolio is concentrated in areas most sensitive to the economy, including technology, energy and financial stocks.

The market could slide further if other economic reports fall short of expectations. Despite better signs on manufacturing and home sales, the labour market remains beaten down. Investors will get the latest news on employment on Friday when the Labour Department releases its monthly jobs report, one of the most closely watched economic reports. Earnings reports from companies in the coming weeks could also move the market.

The Standard & Poor's/Case-Shiller home price index of 20 major cities provided the latest encouraging sign for the troubled housing market. The index rose 1.2 percent in July from June. Home prices are still 13.3 percent below July a year ago, but the annual drops have slowed in all 20 cities for the past six months.

Oil prices continued their fall on the growing belief that the economy will not be strong enough to lift demand as much as expected. Oil had been steadily rising in recent months on expectations that the economy was going to be stronger, therefore pushing demand higher.

Crude fell 13 cents to settle at $66.71 on the New York Mercantile Exchange.

Meanwhile, bond prices mostly fell after five days of gains. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.30 percent from 3.28 percent late on Monday.

The dollar was mixed against other major currencies, while gold prices slipped.

Overseas, Britain's FTSE 100 fell 0.1 percent, Germany's DAX index fell 0.4 percent, and France's CAC-40 slipped 0.3 percent. Japan's Nikkei stock average rose 0.9 percent.