(Corrects to show homeownership rates fell to 64.8 percent from 65.0 percent, not fell to 64.7 percent from 64.8 percent)
* First drop in home prices since January 2012
* Consumer confidence at highest in nearly 7 years
* Consumer view of job market brightest since 2008
By Chuck Mikolajczak
NEW YORK, July 29 (Reuters) - U.S. single-family home prices fell unexpectedly in May, declining for the first time in more than two years in the latest signal of the wobbly state of the housing market.
Still, U.S. consumers remained confident in the broader economic picture, with a key measure of consumer attitudes at its highest since October 2007 and views of the job market the brightest in six years.
The S&P/Case Shiller composite index of 20 metropolitan areas declined 0.3 percent in May on a seasonally adjusted basis, its first fall since January 2012. A Reuters poll of economists forecast a gain of 0.2 percent.
"The slowdown in price appears to be indicative of the weakening in housing activity more generally, particularly after the very slow start to the spring selling season," said Millan Mulraine, deputy chief economist at TD Securities in New York.
"However, while we are not particularly alarmed by the surprising drop in home prices, this report adds to a growing list of housing indicators that are beginning to point in the wrong direction, which could be a early warning signal that all may not be well in this crucial segment of the economy."
Meanwhile, U.S. homeownership rates continue to decline as financially squeezed Americans opt to rent, a separate report from the Commerce Department showed Tuesday. The seasonally adjusted homeownership rate fell to 64.8 percent in the second quarter of 2014 from 65.0 percent in the first quarter, marking the lowest level since the second quarter of 1995.
The U.S. housing market has been struggling for much of 2014, a lull blamed early in the year on harsh winter weather, but softness has persisted into the spring and summer, and many economists now expect housing to drag on economic growth this year.
"Housing has been turning in mixed economic numbers in the last few months," said David Blitzer, chairman of the index committee at S&P Dow Jones Indices, said in a statement.
"Prices and sales of existing homes have shown improvement while construction and sales of new homes continue to lag."
Indeed, data last week showed sales of new homes fell 8.1 percent in June. Measures of new home construction - building permits and housing starts - also fell sharply last month. Sales of previously owned homes, however, rose 2.6 percent in June, but that was down sharply from May.
Investors appeared to focus more on Tuesday's confidence data, with the S&P 500 up 0.25 percent and an index tracking home builders rising as well. The PHLX housing sector index advanced 1 percent.
Bond prices, meanwhile, were generally higher, with the 10-year U.S. Treasury note yield, which moves in the opposite direction to its price, falling to 2.47 percent from 2.49 percent late on Monday.
The Conference Board, an industry group, said its index of consumer attitudes rose to 90.9 in July, the highest level since October 2007, from an upwardly revised 86.4 the month before. Economists had expected a reading of 85.3, according to a Reuters poll.
The report showed consumers' view of the job market was the strongest since July 2008, when the recession was in its early stages and the full force of the financial crisis had yet to hit.
The Conference Board's "Jobs Hard to Get" index stood at 30.7 in July, unchanged from last month's downwardly revised figure. The related "Jobs Plentiful" index rose to 15.9 from 14.6 in June, marking that measure's highest reading since May 2008.
YEAR-OVER-YEAR HOME PRICE GROWTH SLOWS
Non-seasonally adjusted prices rose 1.1 percent in the 20 cities, compared to an expectation of a 1.5 percent rise.
Prices in the 20 cities rose 9.3 percent year over year, the slowest year-over-year gain since February 2013 and shy of expectations for a 10 percent climb.
The seasonally adjusted 10-city gauge fell 0.3 percent in May versus unchanged in April, while the non-adjusted 10-city index rose 1.1 percent in May compared to a 1 percent gain in April.
Year over year, the 10 city gauge rose 9.4 percent.
(Additional reporting by Tim Ahmann; Editing by Meredith Mazzilli)