US shoppers' confidence in their economic prospects slumped in July, according to a keenly-watched survey by the University of Michigan.

The university's key index of confidence slid 5.9 points below the previous month's level, to 86.5 - its lowest level since November.

Economists had been expecting a rise in the barometer.

The index appeared to have an immediate impact on stocks with the Dow Jones index tumbling by 127 points within minutes.

Eating out

The news about consumer sentiment overshadowed strong retail sales figures for June - which raised hopes of economic recovery.

Sales at US retailers grew by 1.1% in June - a bigger increase than expected.

The sales figures showed people were buying more new cars, clothes, electronics and appliances.

They were also eating out more.

Car promotions

The rise in sales came after a fall of the same amount - 1.1% - in May.

There were concerns that the wave of company accounting scandals and the falling stock market would have made people reluctant to go out spending.

One reason for the rise in car sales was that some companies wren offering generous promotions.

Excluding cars, retail sales rose by 0.4% in June which was what analysts had been expecting.

At the moment interest rates are at their lowest level for 40 years.

The Federal Reserve Bank has kept rates on hold at each of its meetings this year because it is worried about the strength of economic recovery.

A growing number of economists now think the Fed might leave rates unchanged for the rest of the year.