U.S. retail sales rose less than expected in January as consumers cut back on car purchases, but a rebound in an underlying sales gauge suggested a solid underpinning for the economy's recovery.
Total retail sales increased 0.4 per cent last month, the Commerce Department said on Tuesday. Economists polled by Reuters had forecast a 0.7-per-cent increase.
Core retail sales, which exclude autos, gasoline and building materials, climbed 0.7 per cent in January.
"I don't think there's anything here that really brings into question the fact that the economy has been improving," said Wayne Kaufman, chief market analyst at John Thomas Financial in New York.
Even so, U.S. stock futures added to losses following the data's release, while Treasury debt prices extended small gains and the euro extended losses against the dollar.
Fears of a sharp slowdown in the U.S. economy have faded in recent weeks on signs that the job market is picking up and manufacturing is accelerating. Confidence among small U.S. business owners hit a four year-high in January, the National Federation of Independent Business said on Tuesday.
With the economy strengthening, there is a good chance the Federal Reserve will raise interest rates before the end of 2014, according to a Reuters poll. The Fed has said it expects to hold rates low through the end of that year.
Still, with the unemployment rate at 8.3 per cent in January, a significant minority of economists still expect a further easing of monetary policy in coming months.
In the retail sales report, spending at gasoline stations rose 1.4 per cent - the biggest gain since March 2011 - while receipts for electronics increased 0.5 per cent.
Dampening the overall increase, sales of cars and auto parts dropped 1.1 per cent, while shopping at non-store retailers, a category dominated by online sales, also fell 1.1 per cent.
But the increase in core sales, which correspond most closely with the consumer spending component of the government's gross domestic product report, suggested consumers were not growing more timid.
"The headline number was a little weaker than expected but the core figure was better so net-net it was not entirely a negative report," said Boris Schlossberg, director of currency research at GFT in Jersey City, New Jersey.
The government revised downward it estimates for retail sales in both December and November, suggesting consumers did not spend as much as previously thought during the holiday shopping season.
The economy still faces threats from a potential worsening of Europe's debt crisis or the possibility or fiscal tightening at home, although comments by Republican lawmakers on Monday suggested a deal was within reach to extend a payroll tax cut.
An expiration of that tax cut - scheduled for the end of this month - would likely slow economic growth. Extended unemployment benefits are also due to expire at the end of February.
The economy could also take a hit if higher gasoline prices crimp consumer spending on other things.
A separate report from the Labor Department showed U.S. import prices rose a touch more than expected in January as petroleum and food prices rebounded strongly.