US retail sales showed unexpected vigour in March as Americans shrugged off high fuel prices and bought a range of goods, suggesting economic growth in the first quarter was probably not as weak as many had feared.

Retail sales increased 0.8 per cent, the Commerce Department said today, after rising 1.0 per cent in February.

Last month's gains, which surpassed economists' expectations for only a 0.3 per cent rise, could prompt analysts to raise their forecasts for first-quarter consumer spending, the main driver of the economy.

The economy grew at an annual rate of 3.0 per cent rate in the fourth quarter and growth in the Jan-March period was seen at around 2.5 per cent.

"It's a clear sign that US consumer spending remains strong. On balance I think it's the latest sign here that the US economy is outpacing a lot of its major counterparts in recovery," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.

However, the growing optimism over the economy was tempered by a separate report showing that manufacturing in New York state slowed sharply this month as shipments of goods weakened.

Factories, however, hired more workers and received higher prices for their goods, giving the report a mixed tone.

The New York Federal Reserve Bank said today its "Empire State" manufacturing activity index fell in April to 6.56, the lowest reading in five months, from 20.21 in March.

"We'll have to see if that's a one-off or the start of a trend. If manufacturing slows down, that will certainly be a headwind to the economy," said Wayne Kaufman, chief market analyst at John Thomas Financial in New York.

Another report also showed confidence among homebuilders slipped in April for the first time in seven month amid expectations of a slower sales pace in the next six months.

Stocks on Wall Street were narrowly mixed in early dealings, while prices for Treasury debt were little changed. The dollar rose modestly against a basket of currencies.

The rise in sales last month was broad-based, even though Americans paid 27 cents more per gallon of gasoline than they did the prior month.

So far, Americans appear to be taking rising fuel prices in stride, thanks to a mild winter that has cut heating bills.

Motor vehicle sales rose 0.9 per cent after increasing 1.3 per cent in February. Auto sales have accelerated in recent months, boosted by pent-up demand by households.

A devastating earthquake and tsunami in Japan caused disruptions to car production last year and left dealers without models that consumers wanted to buy.

Excluding cars, retail sales climbed 0.8 per cent last month after advancing 0.9 per cent in February.

Elsewhere, fuel sales receipts increased 1.1 per cent after rising 3.6 per cent in February. The rise in gasoline sales reflected high prices at the pump.

Details of the report showed some strength, suggesting consumer spending will continue to support growth.

Last month, clothing store receipts rose 0.9 per cent, while sales at building materials and garden equipment suppliers jumped 3.0 per cent - the largest gain since December.

Unseasonably mild weather has helped to boost sales at clothing retailers as well as purchases of building materials and garden equipment.

So-called core retail sales, which exclude cars, fuel and building materials, rose 0.5 per cent after increasing by the same margin in February.

Core sales correspond most closely with the consumer spending component of the government's gross domestic product report.

Sales at restaurants and bars edged up 0.3 per cent, while receipts at sporting goods, hobby, book and music stores rose 0.5 per cent. Sales of electronics and appliances increased 1.0 per cent, the largest gain since October, while receipts at furniture stores climbed 1.1 per cent.

A second report from the Commerce Department showed business inventories increased 0.6 per cent to a record $1.58 trillion as auto dealers restocked to meet increased demand for motor vehicles from consumers.

Reuters