Consumer confidence weakened for a third month in October to its lowest since the aftermath of Hurricane Katrina as gasoline costs rose and the housing slump worsened.

Indeed, a separate report showed home prices posted their biggest drop in 16 years during August, before a retrenchment in lending further darkened the outlook for housing.

Even so, the sharp retreat in confidence took economists by surprise. The Conference Board's index fell to 95.6 from a revised 99.5 in September, well below forecasts around 99.0.

"There is a quite profound confidence deterioration under way," said Pierre Ellis, senior economist at Decision Economics. "Consumers are definitely getting more gloomy. The question is whether that will be reflected in their spending."

The data further complicates an already difficult decision for the Federal Reserve this week on whether to reduce interest rates again amid conflicting messages of slower growth and burgeoning inflation. Oil prices, which hit a record near $94 a barrel on Monday, are a key concern.

The confidence measure was at its lowest since October 2005, not long after a devastating storm hit the Gulf Coast, forcing a surge in gasoline prices and temporarily compromising economic growth.

Lynn Franco, director of the private group's consumer research center, said further weakening in business conditions could "very well be a prelude to lackluster job growth in the months ahead."

The Standard & Poor's/Case Shiller index of 10 major metropolitan areas showed home prices declined 5 percent in August compared with a year earlier, the most rapid deterioration since 1991.

Analysts fear declining home values will prompt consumers to cut back on spending, although there has been only limited evidence of such a pullback thus far.

The link between consumer confidence and actual spending is not airtight, but there did seem to be some correlation in recent weeks.

Weekly data from Redbook Research showed chain store sales falling 0.3 percent so far this month compared with September. Separately, the International Council of Shopping Centers reported a tiny 0.1 percent gain for the latest week available, following a steep 1.5 percent in the preceding period.