Sales at U.S. retailers slowed in January as extreme weather in large parts of the country kept some shoppers at home, but the underlying improving trend in spending remained intact.

Total retail sales rose 0.3 percent, the Commerce Department said Tuesday, advancing for a seventh straight month. Sales rose 0.5 percent in December.

Economists polled by Reuters had expected retail sales to increase 0.6 percent last month. Compared to January last year sales were up 7.8 percent.

Seventy percent of the country was covered by snow in January so, if anything, it's a miracle the consumer didn't just hibernate, said Chris Rupkey, chief financial economist at Bank of Tokyo/Mitsubishi UFJ in New York.

Economists also noted that sales were taking a breather after recent hefty gains and expected the upward trend to resume, spurring the economic recovery. The U.S. economy grew at a 3.2 percent annual rate in the fourth quarter of 2010, powered by robust consumer spending.

However, revisions to the retail sales data from prior months suggested fourth-quarter growth may not have been quite as robust as first reported. Barclays Capital economist Theresa Chen said she lowered her estimate for fourth-quarter spending growth to 4.2 percent from an initially reported 4.4 percent.

U.S. stocks were lower after the data, while government debt prices were slightly higher, and the U.S. dollar was little changed against the euro but higher against the yen.

CORE SALES UP 0.5 PCT

Excluding autos, sales increased 0.3 percent last month, below economists' expectations for a 0.5 percent gain, after rising 0.3 percent in December.

Sales last month were held back by a 2.9 percent drop in receipts at building material and gardening outlets after rising 1.8 percent in December. Sales at food services and drinking places fell 0.7 percent, while receipts at clothing and clothing accessories stores slipped 0.3 percent.

But so-called core retail sales, which exclude autos, gasoline and building materials, increased 0.5 percent after slipping 0.1 percent in December.

Core sales correspond most closely with the consumer spending component of the government's gross domestic product report. Consumer spending, which accounts for 70 percent of U.S. economic activity, increased at a 4.4 percent annual rate in the fourth quarter.

January sales at some major U.S. retail chains came in well ahead of analysts' expectations, showing that shoppers who braved snowstorms were buying, not just browsing.

Still, experts predict that people will largely remain frugal and focus on bargains this year.

Higher prices on food and cotton apparel are adding pressure to shoppers whose budgets were already being pinched at the gasoline pump.

Those higher prices will help lift sales at a variety of chains, including Wal-Mart, even if the number of shoppers coming into the stores remains sluggish.

BUSINESS INVENTORIES UP,

In second report, the Commerce Department said business inventories increased 0.8 percent to $1.44 trillion, the highest since January 2009, after increasing 0.4 percent in November. Economists had expected a 0.7 percent gain.

Inventories are a key component of gross domestic product changes. The pace of inventory accumulation slowed sharply in the fourth quarter to subtract from GDP

A separate report from the New York Federal Reserve showed a gauge of manufacturing in New York State climbed to 15.43 in February, the best since June and up from 11.92 in January.

Economists polled by Reuters had expected a reading of 15.00. The report was the latest to the manufacturing sector remains strong, even as the inventory rebuilding cycle starts to wind down.

But U.S. home-builder sentiment was unchanged in February, stuck at a low level for the fourth month in a row as the housing market struggles to recover from its collapse, a survey released Tuesday showed.

The National Association of Home Builders/Wells Fargo Housing Market Index held steady at 16 from last month, as expected.

A reading above 50 indicates that more builders view sales conditions as good than poor. The index has not been above 50 since April 2006.

Although builders are starting to see more interest among potential buyers, that is being offset by competition from foreclosed homes on the market, inaccurate appraisals of new homes and a tight lending environment, NAHB said.

(Reporting by Lucia Mutikani, Leah Schnurr, Ellen Freilich and Jessica Wohl in Chicago; editing by Clive McKeef)

Retail