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INSTANT VIEW 3-Australia retail sales up subdued 0.2 pct in Aug

SYDNEY, Oct 4 (Reuters) - SYDNEY, Oct 4 (Reuters) - Australian retail sales edged up a meagre 0.2 percent in August, with weakness in household goods and clothing pointing to restraint in discretionary spending that adds to the case for further cuts in interest rates.

Other government data out on Thursday showed approvals to build new homes bounced 6.4 percent in August, but that was after a steep fall the month before and left approvals subdued overall.

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KEY POINTS: * Aug retail sales +0.2 pct mth/mth, s/adj (poll +0.4 pct) * July retail sales unrevised at -0.8 pct * Aug building approvals +6.4 pct, m/m (poll +4.7 pct) * Aug house approvals -0.5 pct, m/m For tables see COMMENTARY: SU-LIN ONG, SENIOR ECONOMIST, RBC CAPITAL MARKETS

"A pretty soft outcome. There's some real weakness in household goods, apparel, discretionary cafes and restaurants-type expenditure. The softness -- you can see it in a range of indicators. The underlying trend is really modest. This is after the May and June (interest rate) cuts and supposedly what is a low and stable unemployment rate, so it's consistent with the story that consumers are saving and paying down debt.

"It will be especially challenging if the labour market does start to soften and that's our base case. It's consistent with what we expect to be a move to a sub-trend pace of growth in the second half of the year. We've had a pretty long held view of (official interest rates cut down to) 2.75 (percent) in the first-half of next year. We're sticking to that."

DAVID DE GARIS, SENIOR ECONOMIST, NATIONAL AUSTRALIA BANK

"There was a partial bounce back for department store sales but the data has a soft tinge, maybe that's just the run-off of the government cash payments... The data highlights a defensive consumer and it's keeping the door open for further easing from the Reserve Bank."

MICHAEL BLYTHE, CHIEF ECONOMIST, CBA

"On the retail front we've sunk back into that general torpor that was there before the government cash handouts a few months ago.

"So clearly a pretty soft result for that part of consumer spending at least and there doesn't seem to be much risk of an interest rate led boom breaking out there just yet.

"Building approvals are still a soft result overall, although volatile medium-high component has driven the increase this month, but the underlying trend still looks very soft and one that says rate stimulus is only working through the economy very slowly.

(Asked about another rate cut before Christmas)

"I think so yes, there's clearly limited risk in stirring up those interest rate sensitive sectors given how soft they appear to be at the moment."

MARKET REACTION:

The Australian dollar remained in the defensive after the data, retreating to a fresh one-month low below $1.020. Interbank futures continue to price in a real chance of another cut in interest rates next month, following this week's easing.

LINKS: The Australian Bureau of Statistics Web site is:

For all Australian news and data, 3000 Xtra users can click on AUSTRALIA.

BACKGROUND:

* Analysts had generally expected a modest bounce in retail sales in August after July's surprisingly large pullback. Sales were flattered by government handouts in May and June, but the overall trend remains one of moderate growth.

* Anecdotal evidence suggested sales did improve in August, with low unemployment, solid wage growth and past rate cuts all supporting incomes.

* But consumers also remain keen to save, putting ever more cash into bank deposits, while a very subdued housing market has hit demand for major household items.

* The A$260 billion retail sector accounts for 18 percent of Australia's GDP and is the second-biggest employer after the health industry, with 10.5 percent of all jobs.

* Building approvals have been extremely volatile in the past few months as the bunching of large apartment projects caused a huge spike in May followed by a steep drop off in July.

* Overall, approvals remain historically weak but analysts assume past, and future, rate cuts will encourage a revival over time.

(Reporting by Wayne Cole)

((Wayne.Cole@thomsonreuters.com)(612 9373 1813)(Reuters Messaging: wayne.cole.thomsonreuters.com@reuters.net))

Keywords: AUSTRALIA ECONOMY/