Euro zone August retail sales much stronger than expected

Reuters

* August sales up 0.7 pct m/m and down 0.3 y/y

* Fuels and non-food products behind m/m acceleration

* Spain and Portugal shine among euro members

* Situation improving, analysts call for caution

By Martin Santa

BRUSSELS, Oct 3 (Reuters) - Retail sales in the euro zonerose much more than expected in August and were revised up forJuly as well, in a new sign that households could help sustainthe bloc's nascent recovery.

The volume of retail trade in the 17-nation bloc jumped 0.7percent on the month, helped by demand for fuel, food, clothesand computers, following a revised 0.5 percent increase in July,the EU's statistics office Eurostat said on Thursday.

Economists polled by Reuters expected a 0.2 percent rise inAugust and the previously reported July rise was 0.1 percent.

Domestic demand in the euro zone has been stifled by recordhigh unemployment and by uncertainty over the future pace ofgrowth after the bloc emerged in the second quarter from thelongest recession since the creation of the euro in 1999.

Weak consumer spending is a concern for the European CentralBank, which kept its main interest rate at a record low of 0.50percent on Wednesday, adding it was closely monitoring riskssurrounding the recovery.

The monthly rise in August, the peak of the holiday season,was driven by a 0.9 percent jump in sales of car fuels and a 0.6percent rise in non-food products, while sales of food, drinksand tobacco fell by 0.4 percent after a 1.2 percent increase inJuly.

Improving consumer confidence and low inflation bode wellfor the recovery over the coming months, economists said, butnoted that household spending was likely to remain subdued forsome time.

"Suspicion remains that consumers will likely remaingenerally cautious in their spending in the near term at least,thereby limiting the upside for personal expenditure," saidHoward Archer, an economist at IHS Global Insight.

In Spain, where unemployment remains at a record high above25 percent and the government is implementing structuralreforms, retail sales accelerated by 3.8 percent in Augustagainst July, the strongest rise in a year.

Portugal, heading for an exit next year from an economicadjustment programme signed with international lenders in returnfor financial aid, saw retail sales surging by 4.8 percentmonth-on-month, the strongest acceleration since January 2009.

The year-on-year reading for the euro zone showed a muchsmaller-than-expected 0.3 percent drop for August, following analso downwardly revised 0.7 percent fall in July. Economistspolled by Reuters saw a 1.5 percent decline.

Retail sales in Europe's largest economy Germany, nowwaiting for a new government to be formed after an electionvictory by Chancellor Angela Merkel's party last month, rose forthe first time in three months, showing a 0.5 percent rise.

"The situation varies between countries and German consumersare in a generally decent position to spend with employment at areunification high and real incomes rising," Archer said.

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