July 3 (Bloomberg) -- Hong Kong's retail sales grew at the slowest pace in a year as a stock-market slump damped consumer confidence and a shortened Chinese holiday dented tourism.

Sales by value rose 12.9 percent in May from a year earlier to HK$23.1 billion ($3 billion), the government said today on its Web site, after gaining a revised 18.6 percent in April. That compared with the 17 percent median estimate of 13 economists surveyed by Bloomberg News.

The Hang Seng Index of shares has fallen 24 percent this year on concerns that slower growth in China and the world will reduce profits, while inflation is running at more than double the pace of 2007. Tourism growth slowed in May after China shortened a week-long holiday to a three-day break.

``The shorter holiday affected tourism,'' said Sun Mingchun, an economist at Lehman Brothers Holdings Inc. in Hong Kong. ``Food inflation has begun to reduce consumers' purchasing power and the stock market may also be having a negative effect on confidence -- the outlook for retail sales is uncertain.''

The increase was the slowest since May 2007 after excluding distortions caused at the start of each year by China's Lunar New Year holiday.

Sales of clothing and footwear climbed 8 percent, less than half the 18.3 percent gain in April. Sales of jewelry, watches and clocks rose 18.4 percent, down from a 32.4 percent increase.

By volume, retail sales rose 5.5 percent in May from a year earlier after gaining a revised 11.5 percent.

Faster Inflation

Hong Kong's consumer prices rose 5.7 percent in May from a year earlier, compared with the 2 percent pace in 2007, as a fixed exchange rate boosted import costs and food from China, its major supplier, became more expensive.

Tourist arrivals climbed 6.3 percent in May from a year earlier after rising 11.2 percent in April, the Hong Kong Tourism Board said last week. The number of Chinese visitors increased 6.4 percent after surging 19.8 percent.

Still, low unemployment, interest-rate cuts and tax breaks offer support to spending.

The jobless rate in the city of 7 million people stood at 3.3 percent in the three months ended May 31, the lowest in a decade. Wages rose 3.8 percent in March from a year earlier.

Hong Kong's lenders cut interest rates seven times between September and March, following similar moves by the U.S. Federal Reserve because of a currency peg to the dollar.

The government has cut personal income tax, scrapped beer and wine duties, subsidized household electricity costs and waived property rates to spur consumption and shield people from inflation.

For the first five months, Hong Kong's retail sales rose 16.8 percent from a year earlier by value and 10.4 percent by volume, the government said.

Hong Kong's economy expanded 7.1 percent in the first quarter from a year earlier, the fastest pace in two years. Household spending jumped 7.9 percent.

To contact the reporters on this story: Nipa Piboontanasawat in Hong Kong at npiboontanas@bloomberg.net; Stephanie Wong in Hong Kong at swong139@bloomberg.net

Last Updated: July 3, 2008 04:44 EDT