U.S. consumer confidence rose in May to its highest level in more than two years as an improving jobs outlook defied for now the growing fears about European debt market turmoil and threats to global growth.

By contrast, the housing market, another pillar of the economy, is looking shaky after the expiration at the end of April of a home buyer's tax credit.

Jobs were key to consumers recovering their nerve. A Conference Board report on Tuesday said fewer of those surveyed found jobs hard to get. Consumers account for more than two-thirds of U.S. economic growth.

After more than 8 million jobs were shed in a long-running economic downturn, U.S. payrolls grew for four straight months including April.

It appears that consumers are focusing on the improvement in the labor market as an indication that things are getting better, said Tom Simons, money market economist with Jefferies & Co in New York.

Consumer confidence rose for the third-straight month in May, to 63.3, from a downwardly revised 57.7 in April.

The median of forecasts from analysts polled by Reuters was for a reading of 59.0 in May.

The optimism of the U.S. consumer contrasts with recent signs of consumer demand in Europe, which have been mixed.

Financial markets mostly ignored the data and worried about Europe's public debt crisis. Prices of U.S. Treasury bonds rose. Major stock indexes lost about 2 percent but rallied late in the session to end little changed for the day.

The May consumer confidence survey results showed Americans were little affected by the euro zone debt crisis or the resulting sharp sell-off in U.S. stocks earlier this month.

Apparently they're not paying too much attention to what's going on in Europe, Simons said.

Given what's going on, the fact that confidence is continuing to improve shows that the U.S. consumer is very provincial and not sort of globally minded as to how they think the developments in Europe will affect corporations in the United States and their ability to hire workers, he said.

The Dow Jones industrial average <.DJI> on May 6 briefly fell nearly 1,000 points -- its biggest-ever intraday point drop. The Conference Board survey's cut-off date for the latest survey was May 18, and it is unclear how consumers responded to the latest leg down in markets.

HOUSING HITTING FLOOR?

Housing, a cornerstone of the U.S. economy that crumbled in the credit crisis and contributed to the most protracted recession in decades, is still rickety, data showed.

Most forecasters think it is a floor, and they think we'll be bouncing around it this year maybe, but then it's going to start going up, but not everyone agrees on that, Robert Shiller, an economist and co-founder of the S&P/Case-Shiller Home Price Index, told Reuters Insider on Tuesday.

Single-family home prices in 20 major cities were unchanged in March from February, but fell in the first quarter on renewed price pressure as sellers and buyers braced for a tax credit to expire on April 30, Standard & Poor's/Case Shiller home price indexes showed on Tuesday.

Prices have rebounded from lows hit during the crisis, yet the end of tax incentives for home buyers, combined with mounting foreclosures, suggest more weakness, S&P said.

For the first three months of the year, S&P's national home price index fell 3.2 percent, unadjusted, compared with a 1 percent drop in the fourth quarter.

But Californian cities, among the hardest hit by the credit crunch, posted gains.

Yet the performance of the domestic economy is not the only concern for the United States, given the danger that economic weakness or a surge in government debt yields could become a global phenomenon, analysts worry.

A worst-case scenario for the United States would be cascading sovereign debt defaults that spread into larger European economies.

Banks could clamp down on lending to protect their capital base. Goldman Sachs has estimated a severe credit crunch would take about 1.5 percentage points off of U.S. economic growth, potentially triggering a double-dip recession.

U.S. bank exposure to the entire euro area is estimated at $1 trillion.

After the worst recession in 70 years, the health of the economy is a key issue for American voters in the November congressional elections that are expected to be rough on many incumbent politicians.

(Reporting by Lynn Adler, Emily Flitter, Emily Kaiser, Caroline Valetkevitch and Wanfeng Zhou; Writing by John Parry; Editing by Kenneth Barry)

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