A grim reading on US consumer confidence has darkened the outlook for the country’s economic recovery.

The University of Michigan's report that consumer sentiment in August had unexpectedly headed south rattled US and European stock markets.

The sentiment index dipped to a preliminary level of 63.2 from 66, confounding most analysts who had expected it to rise to a reading of 69.

It was the second straight month of decline after four monthly increases.

In June, the index hit its highest level since February last year at 70.8.

The weak consumer sentiment reading lent support to a poorer outlook for consumer spending, the main driver of US economic activity.

Separately, the Federal Reserve reported that US industries boosted production in July for the first time in 9 months.

Industrial production rose by 0.5 percent, a tick higher than the consensus forecast of 0.4 percent.

The Fed notes that the gain in July marked the first monthly increase since the world's largest economy officially entered recession.

Manufacturing output advanced 1 percent in July, led by a 20.1 percent jump in auto production.

Analysts say the stunning increase in auto production was due to the government’s “cash-for-clunkers” programme.

Another report by the US Labor Department showed that consumer prices held unchanged in July from June, in line with expectations.

Core Consumer Price Index (CPI) rose 0.1 percent, slowing from a 0.2 percent rise in June.

Compared to the same period last year, CPI dropped 2.1 percent, the steepest fall since 1950.

The Labor Department says the decline was due to an unfavorable comparison with pre-global meltdown conditions.

Following the results, US stocks fell broadly, as the major indices snapped a four-week streak of gains.

The Dow Jones industrial average dipped 76 points, or 0.8 percent, to 9,321.

The Standard & Poor's 500 Index lost 8 points, or 0.8 percent, to 1,004.

And the Nasdaq Composite Index dropped 24 points, or 1.2 percent, to 1,985