* RBA drops easing bias, says loose policy justified
* Official cash rate kept at 3 percent for fourth month
* Retail sales down 1.4 pct in June, up 2 pct for Q2
* House prices jump surprisingly strong 4.2 pct in Q2 (Recasts with rate decision)
By Wayne Cole
SYDNEY, Aug 4 (Reuters) - Australia's central bank on Tuesday took a step toward an eventual rise in record-low interest rates, closing the door on the chance of further easing in an expression of confidence on the economy at home and abroad.
Yet the Reserve Bank of Australia (RBA) also concluded its monthly policy meeting by saying the current low rate of 3.0 percent was justified, suggesting it was in no hurry to tighten.
"It seems likely that the next move in interest rates will be up," said David de Garis, senior markets economist at National Australia Bank. "It's a neutral policy setting. The first hike may not come until next year, but higher rates nonetheless."
The Australian dollar
Interest rate futures <0#YBA:> pared the chance of a move
as early as Christmas, but swaps
In a brief statement, RBA Governor Glenn Stevens said: "The judgment is that the present accommodative setting of monetary policy is appropriate given the economy's circumstances."
The risk of severe contraction in Australia had abated and economic growth was likely to be stronger in 2010, he said.
That was a marked change from July when the central bank said it still saw scope for a further easing of monetary policy.
It means the RBA is probably the only central bank in the developed world even thinking about raising interest rates.
(For a graphic on comparative rates click on: http://graphics.thomsonreuters.com/089/AU_CBRTS0809.jpg)
LUCK AND STIMULUS
Australia's resilience is in part simple good fortune in acting as a major supplier of resources to China's voracious economy. But it also reflects the outsized impact that stimulus has had here, both fiscal and monetary.
The central bank's aggressive easing was almost fully matched in mortgage rates, taking them to lows not seen in 50 years, unlike in many other countries where strains in banking systems prevented the full cuts from being passed on.
Government pump-priming of over A$52 billion ($44 billion) boosted consumer spending and business confidence, while tax breaks for first-time home buyers revived the housing market.
Data out on Tuesday underlined the effectiveness of all this largesse. While retail sales for June disappointed with a 1.4 percent drop, the decline followed three very strong months and lifted sales for the entire second quarter by a healthy 2.0 percent.
That resilience could be a lifesaver for Australia as retail sales account for around 23 percent of the economy and the sector is the biggest employer with about 15 percent of all jobs.
Michael Blythe, chief economist at Commonwealth Bank, said household consumption now looked like making a sizable contribution to gross domestic product.
"It certainly increases the odds that we won't see another negative GDP number and will have to see another upward revision to economic growth forecasts for Australia," he added.
Australia was perhaps alone among developed economies in boasting a rise in GDP in the first quarter, which did a lot to counter the worst fears among consumers and business.
The revival in the economy was highlighted by a 4.2 percent quarterly jump in house prices in the second quarter, also reported on Tuesday. That was more than double the market forecast and put an emphatic end to four quarters of falls.
Prices were down 1.4 percent on the second quarter of last year, a sharp turnaround from a 6.2 percent pace of decline the previous quarter and modest compared to double digit falls suffered in the United States and the UK.
Just last week the central bank warned of the risk of a house price bubble should home building lag rising demand.
That was one reason investors had moved so aggressively to price in higher interest rates here, even while much of the rest of the world has yet to emerge from recession.
"The RBA's developing discomfort with its 3 percent policy rate mainly is a function of its extraordinary low level," said Rory Robertson, interest rate strategist at Macquarie.
"A hike could be accelerated if the data prove strong, and particularly if employment turns around," he added. "But on this reading, the RBA has not brought forward any tightening and the first move is still not likely until 2010." (Editing by Tomasz Janowski)