* Retail sales up 0.5 percent in April
* Driven by vehicle sales, core sales fall 0.1 pct
* Central bank seen holding rates rate at record low (Adds comment, market reaction)
By Mantik Kusjanto
WELLINGTON, June 12 (Reuters) - New Zealand retail sales rose more than expected in April, driven mainly by car sales, suggesting consumer demand remained patchy and rates will likely be kept at record low levels well into next year.
Seasonally adjusted retail sales values rose 0.5 percent over the previous month, more than double the 0.2 percent rise forecast by economists in a Reuters poll, but those excluding auto sales fell 0.1 percent.
The figures were seen as consistent with the Reserve Bank of New Zealand's view on the economy that there are some positive economic signs emerging, and a pause in rate cutting is needed to assess the recovery.
"The data largely confirm a sluggish consumer, although there are signs of stabilisation in expenditure which will likely be assisted by stronger signs in the key housing market, higher net immigration and the recent income tax cuts," said Su-Lin Ong, senior economist at RBC Capital Markets.
"Coupled with the run of better global data and performance of financial markets, it looks like the RBNZ is drawing close to the end of this easing cycle."
New Zealand consumers have struggled for the past year in the face of high interest rates, a stalled housing market, and rising food and fuel costs. Global financial turmoil has exacerbated a domestic recession, with job losses rising.
The central bank has responded by cutting the official cash rate by a massive 575 basis points since last July to a record low of 2.5 percent to help lower mortgage rates and the overall economy.
The RBNZ left rates on hold for the first time in almost a year at its review on Thursday, saying there were indications the global economic outlook had stabilised, although further cuts were possible.
A Reuters poll shows an expectation of no change in the rate until well into 2010.
Financial markets were unmoved by the retail sales data with the New Zealand dollar anchored around $0.6440, and the September bank bill contract yield steady at 2.85 percent.
Other indicators have pointed to an improvement in business confidence, a levelling out in the housing market slump, and a rise in electronic card retail sales in May.
An economist said improved consumer spending on the back of tax cuts and lower rates should help for a gain in retail volumes in the three months to June 30, which would be the first rise in six quarters.
"This underpins our view that the contraction in GDP in the second quarter is likely to be quite modest," said Deutsche Bank chief economist Darren Gibbs said.
The economy has been contracting since the first quarter of 2008 and is expected to continue shrinking for much of this year.
Economists in a Reuters poll forecast first quarter GDP, due on June 26, to fall 0.9 percent from the fourth quarter.
Friday's data showed core retail sales, which exclude autos, fell 0.1 percent, as opposed to a forecast of 0.4 percent rise.
Vehicle sales and related services such as crash repairs accounted for two-thirds of the increase in April's retail sales with a rise of 3.5 percent.
Land Transport New Zealand's vehicle sales numbers, which are not seasonally adjusted, showed a 17.3 percent drop in April.
The government agency said the trend in retail sales appeared to be flattening after a year of decline. (Editing by Jonathan Standing & Kazunori Takada)