NEW YORK, US - US shares lost ground Tuesday in choppy trade as weak economic data and a bleak outlook from delivery giant UPS darkened the mood ahead of a Federal Reserve decision on interest rates.

The Dow Jones Industrial Average fell 34.93 points (0.29 per cent) to close at 11,807.43 and the Nasdaq composite shed 17.46 points (0.73 per cent) to 2,368.28.

The Standard & Poor's 500 index lost 3.71 points (0.28 per cent) to end at 1,314.29.

Market action came as the Conference Board reported US consumer confidence plunged in June amid growing concerns about jobs and the economy. The business research firm said its index fell to 50.4 points in June from 58.1 points in May, with a gauge of future expectations hitting an all-time low.

Meanwhile the S&P/Case-Shiller home price index showed a year-to-year drop of 15.3 per cent in major cities, a sign of the ongoing woes in the housing sector.

Markets also reacted to news that UPS, seen as a harbinger of economic activity, lowered its profit outlook due to soft economic conditions and high fuel prices.

The market faced 'headwinds from the worst showing in consumer confidence since 1992 and a profit warning from UPS that is raising worries about the economy and corporate profitability,' analysts at Charles Schwab said in a briefing note.

'Jitters remain ahead of the Fed's rate decision and policy statement tomorrow, which could take a hawkish turn given the heightened rhetoric heard in recent weeks about inflation.' Meanwhile oil prices edged higher after OPEC's president rebuffed calls for the cartel to boost output. New York's main oil futures contract, light sweet crude for August delivery, rose 26 cents to close at US$137 (S$187.4) per barrel.

Some analysts say the market is testing its lows hit in March.

'The technical landscape of the stock market has deteriorated over the last six weeks but isn't as bad as one might surmise,' said Mr Frederic Dickson at DA Davidson.

'The market action from a technical perspective appears to be very typical of what one sees during a lengthy bottoming process.' The Fed began a two-day meeting meanwhile amid angst over hawkish comments about inflation from chairman Ben Bernanke.

Most expect the Fed to hold its base rate at 2.0 per cent and signal that its rate-cutting cycle is over, setting the stage for a possible hike later this year. But there is considerable doubt about the central bank's outlook.

'The economy is very weak and the Fed may yet be forced to cut rates before it raises them,' said Mr Robert Brusca at FAO Economics.

'The (tax) rebates may not have provided as much support as he (Mr Bernanke) thought. The Fed's warning that boosted market rates and especially mortgage rates was an unwelcome distraction.' Among stocks being watched, UPS slid 6.04 per cent to US$62.26 after a profit warning from the delivery giant, which said 'slow US economic growth and an unprecedented increase in the cost of fuel have resulted in lower-than-expected US package volume and an accelerating contraction in the use of premium air products.' Dow Chemical fell 2.76 per cent to US$36.58 after announcing it will raise prices as much as 25 per cent to offset energy costs and feedstock prices.

United Airlines parent UAL lost 1.31 per cent to US$6.01 after announcing it will lay off 950 pilots amid plans to reduce domestic flights in the face of skyrocketing fuel prices.

Bonds firmed. The yield on the 10-year US Treasury bond dropped to 4.105 per cent from 4.168 per cent Monday and that on the 30-year bond eased to 4.658 per cent against 4.710 per cent. Bond yields and prices move in opposite directions. -- AFP