By Rebecca Gomez
The Associated Press

NEW YORK - The threat of war with Iraq is eroding consumer confidence, economists said Tuesday, but it doesn't yet seem enough to jeopardize the upward trend in new-home sales.

"There's no doubt the uncertainties about geopolitical events weigh on people's minds," said Josh Feinman, chief economist with Deutsche Asset Management in New York. "Is there going to be a war? Certainly, that's contributing to people's anxiety."

The Consumer Confidence Index slipped to 79 in January from a revised 80.7 in December, but was above the 78.5 that analysts were anticipating. The index is based on a survey of 5,000 U.S. households and compares to its base of 100 in 1985.

"Overall readings continue to reflect the country's lackluster economic activity," said Lynn Franco, director of the Conference Board's Consumer Research Center. "Now, with the threat of war looming, consumers have grown increasingly cautious about the short-term outlook."

The Conference Board report showed consumers were also concerned about the job outlook and their incomes in the next six months. The index has fallen since May when it stood at 110.3, ticking upward just once in November.

Separately:

The Commerce Department reported Tuesday that sales of new single-family homes rose in December to their highest level since the government began tracking results in 1963.

New-home sales reached a seasonally adjusted annual level of 1.08 million in December, achieving both a monthly and yearly record.

For the year, new-home sales ballooned almost 8 percent over 2001 results.

The latest durable goods report showed only a marginal increase, suggesting that the battered manufacturing sector is still far from being able to contribute to an economic recovery.

New orders to U.S. factories for big-ticket goods - also known as durable goods - rose by 0.2 percent in December, the Commerce Department said Tuesday. Though economists were expecting a much bigger increase of 1 percent, the report did improve from November, when new orders of durable goods fell by a sharp 1.3 percent.

Federal Reserve Chairman Alan Greenspan and his Federal Open Market Committee this afternoon will end their meeting in Washington to decide whether to change the short-term interest rate, currently at a 41-year low of 1.25 percent. Many economists think that they'll maintain the status quo, hoping to reinvigorate business spending and sustain consumer participation in the modest recovery.