Retail sales at 7-month high

Australian retail sales rose by the most in seven months in January as consumers spent more at department and clothing stores, helping stoke a rebound in economic growth.

Retail sales climbed 0.8 per cent from December, when they gained a revised 0.5 per cent, the Australia Bureau of Statistics said yesterday.

The median forecast of 20 economists surveyed by Bloomberg News was for a 0.3 per cent increase.

Shares in retailers rose as the report suggested a pickup in spending should fuel a recovery in growth after the fifth-largest economy in the Asia-Pacific region expanded at its slowest pace in four years last year.

Companies including Harvey Norman and Woolworths say sales are rising.

"This is a very positive number and it augurs well for economic growth," said Brian Redican, senior economist at Macquarie Bank, the nation's largest investment bank. "It's a bright spot."

The retail sales increase was the biggest since June.

A separate report showed home-building approvals in January fell 1.9 per cent, the second straight drop, suggesting slowing residential construction is curbing growth.

Shares in Coles Myer, the nation's largest retailer, jumped 2.1 per cent. Harvey Norman, the nation's biggest furniture and electronics chain, climbed 1.8 per cent. Woolworths, Australia's largest grocery store chain, rose 1.9 per cent.

Australia's central bank will probably keep its overnight cash rate at 5.5 per cent next week for a 12th month.

"There's a little bit of life left in consumer spending," Jarrod Kerr, an economist at JPMorgan Chase, said in Sydney.

"Today's strong retail numbers reinforce the Reserve Bank's tightening bias, but they certainly won't act on that bias any time soon."

Australia's economy, in its 15th year of expansion, grew a less-than-expected 0.5 per cent in the fourth quarter as home building declined and consumer spending slowed.

The economy expanded 2.5 per cent over last year, the smallest annual increase since 2001.

Retail spending on clothing rose 2.7 per cent in January from December and sales at department stores climbed 2 per cent, yesterday's report showed. Sales of household goods dropped 1.2 per cent.

Harvey Norman increased sales 10.7 per cent to A$1.24 billion in the three months ended December as hot weather stoked demand for air conditioners.

- BLOOMBERG