Canadian retail sales cool in June; rate hike still expected

By David Ljunggren

OTTAWA (Reuters) - Canadian retail sales cooled in June after three consecutive months of solid growth, but analysts said the economy's overall tone was still strong enough to warrant another interest rate hike this year.

Sales edged up 0.1 percent in June from May, Statistics Canada said on Tuesday, less than the 0.3 percent advance predicted by analysts in a Reuters poll.

The strength of the economy this year helped spur the Bank of Canada last month to raise rates for the first time in nearly seven years. Traders expect another increase in October.

Analysts noted that retail trade in volume terms rose by 0.5 percent in June and said the second quarter had ended strongly.

"We maintain a strong view that the Bank (of Canada) will hike in October," said Fred Demers and Mark McCormick of TD Securities.

Retail sales rose in six of 11 subsectors, representing 38 percent of total retail trade, to hit a record C$48.99 billion ($39.09 billion).

The Canadian dollar strengthened to a session high of C$1.2526 to the U.S. dollar, or 79.83 U.S. cents, up from C$1.2580, or 79.49 U.S. cents, before the data were released.

Sales at general merchandise stores expanded by 2.9 percent, while clothing and accessories retailers posted a 2.7 percent gain. Sales at building material, garden equipment and supplies dealers rose 2.2 percent.

Those increases though were almost wiped out by a 1.4 percent drop in sales at motor vehicle and parts dealers and a 1.8 percent decline in gas station sales. Excluding those two subsectors, retail sales grew by 1.1 percent in June.

"Broader economic data ... still suggest the economy is strong enough to absorb further modest interest rate hikes," said Nathan Janzen of RBC economics.

For a graphic on Canada's economic snapshot click http://tmsnrt.rs/2e8hNWV

(Reporting by David Ljunggren; Editing by Paul Simao)