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UPDATE 1-Australia retail sales pedestrian in Aug, add to rate cut case

(Adds market reaction, detail)

* Retail sales up 0.2 pct in Aug, short of forecasts

* Approvals to build new homes up 6.4 pct, still soft overall

* Markets still wagering on another rate cut for November By Wayne Cole

SYDNEY, Oct 4 (Reuters) - Australian retail sales edged up only marginally in August as weakness in household goods and clothing pointed to restraint in discretionary spending that adds to the case for further supportive cuts in interest rates.

The Australian dollar dipped to a one-month trough after government figures showed retail sales rose 0.2 percent in August from July, when they slipped 0.8 percent. That was under forecasts of a 0.4 percent gain and left sales looking very tepid for the quarter.

Other government data out on Thursday showed approvals to build new homes rose 6.4 percent in August, but that followed a steep 21 percent plunge the month before and did nothing to change the subdued outlook for home construction.

The Reserve Bank of Australia (RBA) cut interest rates by a quarter point to a three-year trough of 3.25 percent on Tuesday as a slowdown in China, falling export prices and a high currency all combined to darken the economic outlook.

Investors are convinced the central bank is not done yet, with interbank futures showing a 64 percent probability on a further move to 3.0 percent next month.

Overnight indexed swaps , which show where the market thinks the cash rate will be over time, put rates down at a record low of 2.67 percent in 12 months.

Such an easing would support household incomes as every quarter point cut in mortgage rates reduces annual repayments on an average A$300,000 home loan by around $564.

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Graphic of global rates: Retail sales vs consumption: Sales and employment: ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> SPENDING ELSEWHERE

A pick-up in retailing would be a positive for the economy given the A$260 billion sector accounts for 18 percent of gross domestic product (GDP) and is the second-biggest employer after the health industry, with 10.5 percent of all jobs.

Retailers have been suffering in the face of intense foreign and online competition, while consumers seem to have fallen out of love with department stores where sales have been especially weak.

Industry figures out this week showed sales of new homes hit a 15-year trough in August while turnover in all home sales is a third lower now than the average of the previous decade, draining demand for household goods like furniture and fridges.

Yet none of this has stopped Australians splashing out on new cars. Vehicles sales jumped to a record high in August with sales of sports utility vehicles up a racy 16 percent for the year.

It is also notable that Australians continue to travel abroad in record numbers, taking advantage of a still high currency, just part of a trend toward spending more on services and experiences than on retail goods.

(Reporting by Wayne Cole; Editing by John Mair)

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

Keywords: AUSTRALIA ECONOMY/