WHAT: U.S. December retail sales report

WHEN: Thursday, January 14 at 8:30 a.m. (1330 GMT)

REUTERS FORECASTS:

The median forecast for retail sales is for rise of 0.5 percent after an increase of 1.3 percent. Forecasts range from flat to a rise of 1.4 percent.

The median forecast for sales excluding autos is for a gain of 0.3 percent following an increase of 1.2 percent in November. Forecasts ranged from a 0.1 percent fall to a rise of 1.2 percent.

FACTORS TO WATCH:

December retail sales could help to restore some confidence in the durability of the economy's recovery, which was shaken by a surprise drop in nonfarm payrolls last month. Major U.S. retailers have reported stronger-than-expected sales for December and motor vehicle purchases have also shown strength.

Retail sales have generally surprised on the upside in the past two months and analysts will be watching to see if this trend continues. However, a snow storm on the country's East Coast a week before Christmas could have a negative impact on sales, analysts caution.

Inclement weather likely depressed sales of building materials last month, potentially reversing November's strong rise. Core retail sales, excluding autos, gasoline and building materials, are expected to have recorded their fifth straight month of gains in December.

Domestic spending is critical to sustaining the economic recovery, which has been largely driven by government stimulus. Consumer spending, which normally accounts for more than two-thirds of U.S. economic activity, has been hobbled by high unemployment.

MARKET IMPACT

An upbeat retail sales report would provide a catalyst to push stocks to fresh 15-month highs, with the benchmark S&P 500 <.SPX> now up 69 percent since bottoming out in early March.

Stocks could move sideways on a weak report as optimism about the latest earnings season mitigates any misgivings about the economic data. Near-term resistance for the S&P 500 is 1,140, same as before last Friday's December payrolls data.

Strong retail sales could see traders bringing forward their expectations of a Federal Reserve interest rate increase, boosting the U.S. dollar and weighing on government debt prices. Prospects of tighter monetary policy could lift the U.S. dollar against the yen as investors increasingly use the Japanese currency to fund carry trades.

Key levels to watch are 95 for dollar/yen and 1.4690/1.47 for euro/dollar.

A combination of strong retail sales and the Treasury Department's auction of $74 billion in 3-year, 10-year and 30-year securities this week could push government debt yields higher, but they will not breach any new technical levels.

(Reporting by Lucia Mutikani, Ellis Mnyandu, Emily Flitter and Wanfeng Zhou; Editing by Chizu Nomiyama)

Retail sales