May 20 (Bloomberg) -- Italian consumer confidence fell to its lowest in more than a decade in May as strikes fueled concern about job security and a recovery in the euro-region's third- biggest economy lagged its European neighbors.

An index based on a survey of 2,000 households by the Rome- based Isae Institute fell to 97.1, the lowest since November 1993, from a revised 101.6 in April. Only six of 27 economists surveyed by Bloomberg forecast a decline in confidence. The 22- year-old survey touched a record low of 93.7 in April 1993.

The Italian economy expanded 0.4 percent in the first quarter, less than the 0.6 percent rate for the 12 nations sharing the euro and the unemployment rate held at 8.5 percent. Attacks on Italian troops in Iraq and strikes against Fiat SpA and Alitalia SpA also weighed on sentiment.

``The amount of attention given to the strikes at Fiat and the risk of bankruptcy at Alitalia has made people worried about their jobs,'' said Pasquale Diana, an economist at J.P. Morgan & Co. in London. ``Italians are worried about growth, and have been for a long time.''

Most measures of confidence included in the report declined, Isae said. Italians were less optimistic about being able to save money or buy durable goods such as cars and washing machines and ``significantly'' more pessimistic about the job market, the report showed.

Strikes

The two-week confidence survey began on May 3, days after a strike at Alitalia and in the midst of labor unrest at Fiat. Four- days of wildcat strikes against plans by Italy's state-owned airline to cut more than 3,000 jobs led the carrier to cancel about 1,400 flights, disrupting travel in Italy. Fiat, Italy's biggest carmaker, suffered lost production of 40,000 cars after strikes at a parts plant in southern Italy.

Italy's benchmark Mib30 stock index fell 0.7 percent to 27,508 at 11:30 a.m. in Milan led by a decline in bank shares such as Capitalia SpA. Lenders have been counting on a recovery in consumer demand for loans to drive profit growth this year.

Increased violence against Italian troops and civilians in Iraq and concern that Italy may be a target of terrorist attacks also hurt confidence, Isae said.

``The worsening of international tensions in the political and military framework has weighed on expectations about the future and the economy,'' Isae said in its report. A reading of sentiment about the economic situation slumped to 82.9 in May from 89.8 in April.

Iraq Violence

In the past five weeks an Italian hostage was murdered in Iraq and troops there suffered their first combat death in six months in stepped-up attacks against Italian forces in southern Iraq. Prime Minister Silvio Berlusconi pledged yesterday to keep the country's 3,000 soldiers in Iraq even as polls show more than half of Italians support a withdrawal. Italians have also been jittery about possible terrorist attacks linked to the government's support for the war after the train bombings in Madrid that killed more than 200 people.

``It's a question of understanding how bad things can get in Iraq because consumers can be very sensitive to war and geo- politics,'' said Alessandro Truppia, chief economist at Aletti Gestielle Sgr in Milan.

The confidence report indicates that signs that growth in the Italian economy is gaining momentum after stalling in the fourth quarter hasn't boosted optimism among consumers. Growth in the first three months was fueled by a recovery of exports as the EU and U.S. economy gained strength. The government is counting on a recovery of demand by consumers, whose spending accounts for almost two thirds of the economy to boost growth by 1.2 percent this year.

The Organization of Economic Development indicated that the growth target was optimistic. The OECD predicted Italy's $1.5 trillion economy would expand 0.9 percent this year, the slowest pace among the G-7 industrial nations.

The confidence survey showed that recent financial scandals such as the bankruptcy of Parmalat Finanziaria SpA, which eroded the investments of 100,000 Italians who held the dairy company's bonds and shares, have made the Italians wary of savings. A reading about plans for savings fell to 62 in May, the lowest since Sept. 2001, from 63 in April, Isae said.

To contact the reporter on this story: Flavia Krause-Jackson in Rome at fjackson@bloomberg.net

Last Updated: May 20, 2004 05:51 EDT