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* Consumer confidence index falls 9.8 pts to 121.5 in June
* New home sales drop 7.8% in May
WASHINGTON, June 25 (Reuters) - U.S. consumer confidence fell to a 21-month low in June, with households a bit more pessimistic about business and labor market conditions amid concerns about a recent escalation in trade tensions between the United States and China.
The economy's prospects were further dimmed by other data on Tuesday showing sales of new single-family homes unexpectedly fell for a second straight month in May, suggesting lower mortgage rates had yet to provide a boost to the struggling housing market.
Growing risks to the economy, especially related to the trade war between Washington and Beijing, and low inflation prompted the Federal Reserve last week to signal interest rate cuts beginning as early as July.
The Conference Board said its consumer confidence index dropped 9.8 points to a reading of 121.5 this month, the lowest since September 2017, from a downwardly revised 131.3 in May. The index, which was previously reported at 134.1 in May, still remains at lofty levels.
"The escalation in trade and tariff tensions earlier this month appears to have shaken consumers confidence," said Lynn Franco, the Conference Board's senior director of economic indicators. "Although the index remains at a high level, continued uncertainty could result in further volatility in the index and, at some point, could even begin to diminish consumers confidence in the expansion."
President Donald Trump last month imposed additional tariffs of up to 25% on $200 billion of Chinese goods, prompting retaliation by Beijing. Trump has threatened more duties on Chinese imports if no deal is reached at a Group of 20 nations summit this week in Japan.
The survey's so-called labor market differential, derived from data about respondents who think jobs are hard to get and those who think jobs are plentiful, slipped in June from May. That measure closely correlates to the unemployment rate in the Labor Departments employment report.
The economy created 75,000 jobs in May, a sharp step-down from 224,00 in April. Job growth has averaged 164,000 per month this year compared to 223,000 in 2018. The pace of job gains, however, remains well above the roughly 100,000 needed per month to keep up with growth in the working age population.
The unemployment rate is hovering near a 50-year low of 3.6%. Gross domestic product growth estimates for the April-June period are ranging from a 1.5% to 2.4% annualized rate. The economy grew at a 3.1% rate in the first quarter.
The Conference Board survey showed the percentage of consumers expecting a rise in their income fell to 19.1% in June from 22.2% in May. The share of those expecting a decrease edged up to 8.0% from 7.8% last month.
The U.S. dollar was little changed against a basket of currencies after the release of the data. U.S. stock indexes were trading lower while prices of U.S. Treasuries were higher.
HOUSE PRICE GROWTH SLOWS
In a separate report on Tuesday, the Commerce Department said new home sales dropped 7.8% to a seasonally adjusted annual rate of 626,000 units last month, the lowest level since December. April's sales pace was revised up to 679,000 units from the previously reported 673,000 units.
Economists polled by Reuters had forecast new home sales, which account for about 10.5% of housing market sales, would rise 1.9% to a pace of 680,000 units in May.
New home sales are drawn from permits and tend to be volatile on a month-to-month basis. Sales fell 3.7% from a year ago. The median new house price declined 2.7% from a year ago to $308,000 in May.
The housing market has remained sluggish even as mortgage rates have dropped, with builders continuing to complain about land and labor shortages. Housing data have been mixed.
Reports last week showed single-family starts dropped in May, but building permits for this market segment rose after five straight monthly declines and home resales rose solidly. Sentiment among builders dipped in June.
The 30-year fixed mortgage rate has tumbled to around 3.84% from near an eight-year high of 4.94% in November. The housing market has been a drag on economic growth for five straight quarters.
New home sales in the South, which accounts for the bulk of transactions, jumped 4.9% in May to the highest level since July 2007. Sales in the Midwest rose 6.3%. But sales plunged 35.9% in the West and tumbled 17.6% in the Northeast.
There were 333,000 new homes on the market last month, up 0.3% from April. At May's sales pace it would take 6.4 months to clear the supply of houses on the market, up from 5.9 months in April. About two-thirds of the houses sold last month were either under construction or yet to be built.
A third report on Tuesday showed the S&P CoreLogic Case-Shiller composite index of home prices in 20 metropolitan areas rose 2.5% in April on a year-over-year basis after increasing 2.6% in March. House price inflation has been slowing after last year's surge in mortgage rates dampened demand for housing. (Reporting by Lucia Mutikani Editing by Paul Simao)