By Fergal Smith
TORONTO (Reuters) -Canadian retail sales grew by 0.9% in July from June, led by higher sales at motor vehicle and parts dealers, while sales likely climbed further in August, data from Statistics Canada showed on Friday.
The increase in retail sales, to C$66.4 billion ($49.0 billion), eclipsed estimates for a gain of 0.6% and could ease fears about the strength of the domestic economy.
Sales were up in seven of nine subsectors, representing 84.6% of retail trade, with sales at motor vehicle and parts dealers climbing 2.2%. In volume terms, retail sales increased 1.0%.
"The rebound in retail sales volumes in July will be welcome news to the Bank of Canada, which has been concerned about the downside risks to the economy," Olivia Cross, North America economist at Capital Economics, said in a note.
The Bank of Canada has cut interest rates three times since June, moving in quarter-percentage-point steps, but has said it could shift to larger cuts if the economy needs a boost.
Chances of a half-percentage-point move in October dipped to 56% from 59% before the retail sales report, swaps market data showed.
Core retail sales, which exclude gasoline stations and fuel vendors and motor vehicle and parts dealers, were up 0.6%, notching their second consecutive monthly increase.
The gain for core sales was led by food and beverage retailers and general merchandise retailers.
A preliminary estimate showed sales rising 0.5% in August.
Still, per-capita sales 'still look weak' and deterioration in the labour market points to weaker discretionary consumption ahead, Katherine Judge, a senior economist at CIBC Capital Markets, said in a note.
Canada has seen historically high population growth in recent years.
The Canadian dollar was little changed at 1.3560 per U.S. dollar, or 73.75 U.S. cents.