UPDATE 2-Canadian retail sales unexpectedly drop 0.3 percent

Wed Oct 22, 2014 9:55am EDT
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(Adds market reaction, analyst comment)

By David Ljunggren

OTTAWA Oct 22 (Reuters) - Canadian retail sales dropped unexpectedly in August as consumers pulled back for the second straight month, heightening uncertainty about broader economic growth and weighing on the Canadian dollar.

Retail sales dropped 0.3 percent in August, pulled down by lower gasoline prices and weaker sales of new cars, food, and housing-related items, Statistics Canada said on Wednesday. Analysts forecast sales would be unchanged from July.

August's decline marked the second consecutive month-on-month fall after six months of gains and was the largest drop since the 1.1 percent decrease in December 2013.

"Canadian consumers are taking a bit of a breather after going on a shopping spree in Q2," Benjamin Reitzes, senior economist at BMO Capital Markets, said in a research note.

"But before becoming too downbeat, retail volumes are still expected to see a decent gain for the quarter despite the softness in July and August."

The Canadian dollar weakened to a session low against the U.S. dollar after the retail data and a report showing U.S. consumer prices rose marginally.

The loonie dipped to C$1.1279 against the greenback, or 88.66 U.S. cents, weaker than Tuesday's close of C$1.1228, or 89.06 U.S. cents.   Continued...