Stocks extended their losses Tuesday after a key gauge of consumer confidence dropped to its lowest level in four months, raising serious questions about the health of consumer spending.

The Conference Board, a private New York research firm, reported its U.S. consumer confidence index dropped to 114.3 in August — well below expectations for a reading of 117.0 — from July's revised 116.3, as a weakening job market weighed on consumers.

The weaker-than-expected data knocked the wind out of stocks. All 30 components of the Dow were down at one point in the session.

The blue-chip Dow Jones industrial average lost 160.32 to end the day at 10,222.03, while the technology-laced Nasdaq Composite Index dropped 47.43 points at 1,864.98. The broader Standard & Poor's 500 Index los 17.70 points to 1,161.51.

Year to date, the Nasdaq is down 24.9 percent, the Dow off 5.2 percent, and the S&P is down 12 percent.

"People have been spending and (that has) been the glue holding the economy together," said Jon Brorson, director of equities at Northern Trust. "Should you get cracks in that, I think that's disturbing for the recovery and for earnings."

The drop in consumer confidence came despite fiscal stimulus to consumers in the form of tax rebates, which economists had thought would bolster the index. One bright spot was that the report's Expectations Index, which gauges consumers' outlook for the next six months, edged up to 93.3 in August from 92.9.

The market's slide added to losses on Monday when investors bet Friday's blazing rally would fizzle like other advances this year amid dwindling corporate profits and a sluggish U.S. economy.

Trading was light, with many traders vacationing ahead of the long U.S. Labor Day weekend. About 981 million shares changed hands on the New York Stock Exchange, while 1.38 billion traded on the Nasdaq.

"People remain skittish about locking in some short-term trading gains so with every new potential short-term bad news it brings out the sellers," said Rick Meckler, senior managing director at investment firm Liberty View. 

Persistent concerns about dwindling corporate profits and a sluggish economy will probably keep the pressure on Wall Street, analysts said.

The Nasdaq was dragged down by big tech names like Sun Microsystems. The network computer maker took a hit after investment bank Goldman Sachs cut its profit expectations for the company, saying economic weakness will take its toll. Sun fell 94 cents to $13.56.

Investors snapped up telecommunications gear maker Lucent Technologies. Lucent, the most heavily traded on the New York Stock Exchange, rose 27 cents to $7.60. Lucent said it closed its Israeli unit Chromatis Networks. 

Telecom provider Alltel Corp. was in focus after it stepped up public efforts to bring rival CenturyTel Inc. to the negotiating table, but gave no indication it would alter its already-rejected $5.86 billion takeover offer for the rural telephone and wireless provider. Alltel fell 5 cents to $57.75, while CenturyTel was off 29 cents at $34.89.

Intel Corp., the world's largest maker of computer chips, said it still expects a seasonal improvement in demand in the second half of the year and its stock briefly rose. But Dow component Intel, the second-most active issue on the Nasdaq, closed down 64 cents at $28.51.

Media and Internet giant AOL Time Warner and tax services provider H&R Block Inc. agreed to make H&R Block the exclusive tax services provider across several America Online services. AOL fell 95 cents to $40.70 and H&R Block edged up 29 cents to $37.74.

In other economic news, U.S. chain store sales rose 0.1 percent in the latest week, led by discount stores which experienced a boost from back-to-school sales, the Bank of Tokyo-Mitsubishi and UBS Warburg said on Tuesday. 

A separate report by Instinet Research showed U.S. retail sales at discount, chain and department stores also rose in the latest week. 

Investors are looking ahead to this week's revision to second-quarter Gross Domestic Product for more clues to the health of the economy. 

Economists are expecting GDP to show a flat reading for the second quarter. The most recent data showed growth slowed to a 0.7 percent pace in the second quarter, from 5.7 percent a year earlier. 

Some analysts said a negative reading could deal a psychological blow to investors, but others were more sanguine.

"I do think investors realize that the economy is slow, and reports that show that is true don't have any real effect on investors," Meckler said.

The Russell 2000 index, which tracks the performance of smaller company stocks, fell 4.73 to 474.20. 

Overseas markets also fell Tuesday with losses deepening in Europe following the news about eroding consumer confidence here. France's CAC-40 and Germany's Dax index each fell 1.8 percent, while Britain's FT-SE 100 lost 0.7 percent. 

Japan's Nikkei stock average finished Tuesday down nearly 0.8 percent.

Reuters and the Associated Press contributed to this report.