UPDATE 2-Australia retail sales pedestrian in Aug, add to rate cut case

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

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

* Markets wagering on another rate cut for November

(Adds analyst reaction, car sales)

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, adding 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.

"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," said Su-Lin Ong, a senior economist at RBC Capital Markets.

"We've had a pretty long held view of rates down to 2.75 percent in the first-half of next year. We're sticking to that."

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 two-in-three 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 ($265.5 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.

Other 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.

Yet none of this has stopped Australians splashing out on new cars. Vehicles sales jumped to a record high in August and rose further in September, to be up 9 percent on the same month last year.

Sales of sports utility vehicles were racing along at a 20 percent annual pace, showing consumers still have the confidence to splash out on big ticket items even while being cost conscious elsewhere.

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. ($1 = 0.9795 Australian dollars)

(Reporting by Wayne Cole; Editing by John Mair & Kim Coghill)

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