U.S. retail sales posted their smallest gain in nine months in March, as auto sales plunged and consumers felt the sting of higher gas prices.

In another sign that economic growth slowed in the first quarter, the government on Wednesday separately reported a sharp slowdown in the accumulation of inventories by businesses in February.

Economists, who have steadily lowered growth forecasts as first-quarter data has come in, swiftly cut them again. Still, they expect the recovery to regain momentum later this year.

The recovery and spending in the first quarter shaped up to be a bit of a disappointment, partly because of energy prices, and we are limping into this (second) quarter, said Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania.

Retail sales advanced 0.4 percent in March, the Commerce Department said on Wednesday. Excluding gasoline, retail sales were up a scant 0.1 percent.

Economists now see first-quarter gross domestic product growth as low as a 1.4 percent annual rate. Earlier this year, many economists were expecting a pace of around 3.5 percent. The economy grew at a 3.1 percent rate in the final three months of 2010.

Business inventories are a key component of GDP, and less restocking by business also implies a slower pace of production.

Gasoline prices, which accounted for the bulk of the retail sales increase in March, have been a big factor restraining growth. Bad weather early in the year and a still-weak labor market have also weighed on the economy.

The forces holding back real GDP growth in the first quarter will prove temporary, said Dean Maki, chief U.S. economist at Barclays Capital in New York. Other major indicators of activity have all been moving in a way consistent with strong, not weak, economic growth.

Businesses are starting to feel the pinch of high energy prices, a Federal Reserve report noted on Wednesday.

In its Beige Book summary of economic conditions, the U.S. central bank said the economy continued to improve over the past month, but higher commodity costs were reported to be putting upward pressure on prices.

EXPENSIVE GASOLINE BOOSTS SALES

Receipts at gasoline stations, which accounted for about 1/10th of overall retail sales last month, increased 2.6 percent after rising 2.4 percent in February.

Gasoline prices rose 35 cents to an average $3.62 a gallon last month, and the U.S. Energy Information Administration warned on Tuesday that prices could increase to about $4 a gallon nationwide this summer.

Upward revisions to January and February sales data took some of the sting out of the report, leaving consumer spending growth tracking at about a 2 percent rate in the first quarter, according to economists.

Consumer spending, which accounts for 70 percent of U.S. economic activity, grew at a brisk 4 percent pace in the final three months of last year.

In a separate report, the Commerce Department said business inventories rose 0.5 percent in February after advancing 1 percent in January.

Businesses sharply scaled back on restocking in the fourth quarter of 2010, resulting in inventories slicing 3.4 percentage points off GDP growth during the period. Economists had expected a faster pace of restocking to help lift growth early this year, but the February data tempered their expectations.

The reports had little impact on financial markets. On Wall Street, the Dow industrials and the Standard & Poor's 500 Index were each up 0.1 percent, having given up earlier gains on strong profit growth at JPMorgan Chase & Co, which drastically cut the amount of money set aside for bad loans. But the Nasdaq was up 0.6 percent, buoyed by advances in tech shares.

A 1.7 percent drop in auto sales weighed on the March retail figures. Excluding autos, sales were up 0.8 percent.

Elsewhere, clothing store receipts rose 0.6 percent last month, while sales at sporting goods, hobby, book and music stores edged up 0.1 percent.

Despite being squeezed by high gasoline prices, consumers splurged on furniture -- which registered the largest gain since July 2004 -- and on electronics and appliances. Sales of building materials and garden equipment were also solid.

It looks to us that people are maintaining spending in the face of higher gas prices by cutting their savings, said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York.

So-called core retail sales -- which exclude autos, gasoline and building materials -- rose 0.4 percent after a 1.1 percent gain in February. Core sales correspond most closely with the consumer spending component of the government's gross domestic product report.

(Editing by Leslie Adler and Jan Paschal)

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