* Retail sales up 0.2 pct m/m, 0.3 pct y/y
* Outlook cloudy due to joblessness, austerity measures
(Updates with analysts' comment)
By Marcin Grajewski
BRUSSELS, July 5 (Reuters) - Euro zone retail sales rose moderately in May after a sharp decline in April, data showed on Monday, pointing to continued weakness in consumer spending and a fragile economic recovery. European Union statistics office Eurostat said retail sales in the 16 countries that share the euro single currency, a good indication of households' propensity to spend, rose 0.2 percent during the month and 0.3 percent since May last year.
Economists polled by Reuters had expected a 0.4 percent monthly increase and a 0.3 percent year-on-year decline.
For full details and a table please see: http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/4-05072010-AP/EN/4-05072010-AP-EN.PDF
"The underlying softness in euro zone retail sales is highlighted by their being only flat in the three months to May compared to the three months to February," said Howard Archer, chief European economist at IHS Global Insight.
"Indeed, the ingredients hardly form a heady cocktail for euro zone consumer spending -- confidence is relatively subdued and fragile, the euro zone unemployment rate is currently at a near 12-year high ..., wage growth is muted, and fiscal policy is being tightened appreciably in many countries."
Eurostat revised up the April retail sales figure to -0.9 percent month-on-month and -0.5 percent annually, from previous readings of -1.2 percent and -1.5 percent respectively.
Consumer demand is weak because unemployment in the euro zone is near 12-year highs of 10 percent and may rise further, keeping a lid on wage growth and limiting households' spending.
Retailers in Europe have been struggling with weak consumer morale despite signs of economic recovery as many government ordered spending cuts to alleviate the sovereign debt crisis.
"Although ... the confidence fallout from the sovereign debt crisis has been relatively contained thus far, the prospect of fiscal austerity is likely to weigh on consumer spending intentions going forward, especially in the periphery," said Martin van Vliet, economist at ING.
Eurostat said food drinks and tobacco sales increased 0.2 percent month-on-month in the euro zone in May while non-food products were up 0.4 percent. Year-on-year, the figures were 0.3 and 1.0 percent respectively.
Germany, the euro zone's biggest economy, saw retail sales grow 0.4 percent in May, while France rose by 0.2 percent.
In the whole 27-nation European Union retails trade increased by 0.4 percent and 0.5 percent, boosted by figures in non-euro Britain and Poland.
IHS Global Insight's Archer said May retail sales was another figure in a recent string of data that strengthened expectations that the European Central Bank would keep its main interest rate down at 1.00 percent long into 2011.
(Editing by Toby Chopra)