Surprise increase in US retail sales

US retail sales rose more than expected in June, paced by purchases of building materials, furniture and apparel, a government report showed, bolstering expectations the economy will accelerate in coming months.

Sales rose 0.5% during the month to $310.4 billion, after no change in May, the Commerce Department said in Washington. Excluding automobiles, sales increased 0.7% last month following a 0.1% gain.

A 23% rise in the Dow Jones Industrial Average since a March low, discounted merchandise and low borrowing costs are fuelling spending. Tax rebate checks to be mailed out weeks from now and smaller income tax deductions may give households the wherewithal to keep buying and help propel the economy, economists said.

“The better tone in spending is for real,” said Robert Mellman, an economist at JP Morgan Securities Inc in New York. “It gives us a lot more confidence’ the pace of growth will pick up in the next six months, he said.

Federal Reserve Chairman Alan Greenspan may tell lawmakers later today that the economy is poised to strengthen, economists said. He may also use the testimony to signal that the central bank will keep its benchmark interest rate at a 45-year low of 1% to ensure the pick up is well-rooted.