* S&P review for Portugal debt hits stocks late
* Consumer confidence, Midwest manufacturing lend support
* Volatility index surges on short-term uncertainty
* Dow down 0.4 pct, S&P off 0.6 pct, Nasdaq off 1.1 pct * For up-to-the-minute market news see [STXNEWS/US] (Recasts with S&P's Portugal review, adds analyst's quote and Lowe's)
By Edward Krudy
NEW YORK, Nov 30 (Reuters) - U.S. stocks fell in a choppy session on Tuesday as news late in the session that Portugal's debt could be downgraded reignited selling in a high-volume flurry that may bode ill when markets reopen.
Earlier, the S&P 500 had erased much of a 1 percent loss after improved consumer confidence and manufacturing data were the latest signs the U.S. economy was on the mend.
Adding to investors' near-constant torment from Europe, Standard & Poor's put Portugal's credit rating on review for a possible downgrade just minutes before U.S. markets closed, saying the country may have to turn to the EU and IMF for funding.
If European markets take that news badly when they open on Wednesday, selling may spill over into U.S. trading.
"If you start to see them sell off substantially, it usually tends to have a rollover effect," said Doug Roberts, chief investment strategist at Channel Capital Research.com in Shrewsbury, New Jersey.
Financial and technology stocks ranked among the biggest drags.
Bank of America
With Europe engaged in ad hoc crisis management for much of the year, investors are torn between fears the region's troubles will spiral out of control and signs of U.S. economic strength and equity valuations that are below long-term averages.
"You do have a bit of a tug of war between those investors who see the environment as positive for equities over the intermediate to long-term (and) traders who are more concerned about the short-term impact of European debt concerns," said Tim Ghriskey, chief investment officer of Solaris Asset Management in Bedford Hills, New York.
Consumer discretionary stocks were among the better performers
after the Conference Board reported U.S. consumer confidence rose to
its highest level in five months. Retailer Gap Inc
Improved consumer sentiment as well as stronger U.S. Midwest business activity are the latest in a series of reports that have made investors more optimistic before Friday's November unemployment report and as the holiday spending season gets under way. [ID:nN30263756]
"If we get that (nonfarm payrolls) print up toward 200,000 like we expect ... maybe that's enough to break the spell of being transfixed by the European problems," said Bill Stone, chief investment strategist at PNC Wealth Management in Philadelphia.
The Dow Jones industrial average <.DJI> dropped 46.47 points, or 0.42 percent, to 11,006.02. The Standard & Poor's 500 Index <.SPX> fell 7.21 points, or 0.61 percent, to 1,180.55. The Nasdaq Composite Index <.IXIC> lost 26.99 points, or 1.07 percent, to 2,498.23.
Global investors increased their exposure to equities in November despite weaknesses on many bourses, while U.S. and British fund managers stepped away from crisis-hit euro-zone bonds, a Reuters asset allocation poll found.
For details on Reuters' latest asset allocation poll, see
[ID:nN29202856] [ID:nLDE6AT0HU] and [ID:nLDE69R0FD]
VIX JUMPS, GOOGLE FALLS
Reflecting investors' fear over short-term uncertainty, the CBOE Volatility Index, or VIX <.VIX>, shot up 9.3 percent to 23.54.
Amid the economic reports, the S&P/Case-Shiller home prices data was a fly in the ointment. Monthly prices fell more than expected in September and prices from a year earlier rose more slowly than forecast. [ID:nNLLTME6O7]
But in a sign that investors may have grown too bearish on the sector, the Dow Jones U.S. home construction index <.DJUSHB> edged up 0.9 percent after closing Monday at its lowest since July 2009. The index is down 13.2 percent this year.
U.S. home improvement chain Lowe's Cos
Google Inc
Declining stocks beat advancers by a ratio of almost 2 to 1 on the New York Stock Exchange, and by just over 2 to 1 on the Nasdaq.
About 9.08 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, above the year-to-date average of about 8.48 billion. (Reporting by Edward Krudy; Editing by Jan Paschal)