U.S. retail sales rose unexpectedly last month despite heavy snow storms that were thought to have kept shoppers at home and bolstered hopes of a sustainable economic recovery.

Optimism about Friday's report was tempered by a slip in consumer confidence early this month. Worries about stubbornly high unemployment held back sentiment, even though the economy appears to be on the cusp of creating jobs.

The manufacturing recovery is starting to broaden out to the key consumer area of the economy. Consumers are keeping up their end of the bargain to ensure the recovery from recession is a sustainable one, said Chris Rupkey of the Bank of Tokyo-Mitsubishi in New York.

Sales rose 0.3 percent, the Commerce Department said, as consumers bought an array of goods from necessities to luxury items. Analysts had expected sales to slip 0.2 percent. January sales, however, were revised down to a gain of 0.1 percent from the previously reported 0.5 percent rise.

U.S. stocks initially rose on the retail sales data but lost steam, and major indexes ended flat on the surprise drop in consumer confidence. U.S. government debt prices rose as investors focused on the weak sentiment data, while the dollar tumbled to a one-month low against the euro.

The sales report was the latest in a series of data hinting at building underlying strength in an economic recovery that has been largely driven by government stimulus and a swing toward inventory building by businesses.

Officials from the Federal Reserve meet on Tuesday and are expected to hold overnight interest rates in a range of zero to 0.25 percent and maintain a pledge to keep them ultra-low for an extended period to foster a more robust recovery.

Stronger data, however, could spark a lively discussion at the meeting, as some officials have raised concerns about the inflationary impact of keeping rates too low for too long.

Treasury Secretary Timothy Geithner said on Friday the economy was gradually strengthening across the board, but cautioned it would take time to fully recover.

The rise in spending came even as consumers were turning more sour. Thomson Reuters/University of Michigan's Surveys of Consumers' index on consumer sentiment slipped to 72.5 from 73.6 in February. That was below market expectations for 73.6.

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Economists, however, warned against placing too much weight on the dip in sentiment, saying it was not a good predictor of future sales. Consumer spending has continued to surprise on the upside even with confidence trending lower.

What is more important is what happens in the job market and that market is improving. February was distorted by storms, but the underlying trend is up and March will be strong, said Bill Cheney, chief economist at John Hancock Financial Services in Boston.

Sluggish consumer spending had fed worries the economy's recovery from the worst downturn in seven decades could falter when support from government stimulus and the swing in the inventory cycle disappears.

Motor vehicle and parts purchases extended their decline last month, falling 2 percent, likely reflecting a drop in demand by consumers nervous about vehicle recalls by Toyota Motor Corp. Excluding motor vehicles, retail sales rose 0.8 percent, building on a 0.5 percent rise the prior month.

Even more encouraging, core retail sales -- which correspond most closely with the consumer spending component of the government's gross domestic product report -- increased 0.9 percent after rising 0.6 percent in January.

This implies that personal consumption is on track to exceed 2.0 percent for the first quarter of the year and bodes well for a greater than 3.0 percent print on gross domestic product, said Joseph Brusuelas, chief economist at Brusuelas Analytics in Stamford, Connecticut.

A second report from the Commerce Department showed business inventories were unchanged in January after falling by 0.3 percent in December.

Inventories are a key component of gross domestic product changes over the business cycle and a sharp slowdown in the pace of inventory liquidation handed the economy its fastest growth rate in six years in the fourth quarter.

(Additional reporting by Glenn Somerville in Washington and Caroline Valetkevitch in New York; Editing by Chizu Nomiyama)

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