US retail sales rising at fastest rate for two years

Wall Street traders piled into US shares and the dollar yesterday after official figures showed that retail sales had surged in January at the fastest rate for two years.

Sales at retailers other than car showrooms rose by 1.2 per cent last month after a revised 0.7 per cent increase in December, the Commerce Department said.

Analysts had expected a 0.4 per cent increase in January. The increase was the largest since a 2 per cent jump in March 2000, according to officials.

Car sales fell by 4.3 per cent as a mini-boom in sales fuelled by the dramatic cuts in interest rates after 11 September, finally ran out of steam.

The fall in auto sales dragged down the headline figure to put in a 0.2 per cent fall overall, but the financial markets honed in on evidence of a pick-up in consumer spending.

The dollar enjoyed its biggest gain against the euro in almost three weeks. It gained half a cent to 87.26 cents from 87.68 late on Tuesday.

Stock markets followed suit. The Dow Jones gained 0.81 per cent in early trading, while the Nasdaq climbed 0.80 per cent and the broad S&P's 500 index added 0.65 per cent.

Alan Ruskin, a research director, at online analyst 4cast, said: "The collective picture is nice and solid. It's a solid plus for the equity market and the dollar. This is the kind of number that is consistent with the economy picking up somewhat faster than people anticipated."

Economists watch retail sales closely, as consumer spending on goods and services makes up two-thirds of economic activity.

With signs the recession that began in March has bottomed out, the Federal Reserve has taken a more cautious stance on interest rates. After cutting rates 11 times to 40-year lows in 2001, the Fed held rates steady at its January meeting.

Recent speeches by Fed president, Alan Greenspan, have pointed towards the next move in rates being a hike.

Yesterday, St Louis Fed president, William Poole, said the economy was "in the neighbourhood of a bottom as best as I can tell".