Aug. 13 (Bloomberg) -- U.S. retail sales rose more than forecast in July, a signal that consumer spending will moderate, not collapse, as the housing recession persists.

The 0.3 percent increase followed a revised 0.7 percent decline the prior month that was smaller than previously estimated, the Commerce Department said today in Washington. Purchases excluding automobiles climbed 0.4 percent after falling 0.2 percent.

Apple Inc.'s new iPhone propelled sales at electronics suppliers, helping to offset declines at auto dealers and gasoline stations. The figures bear out the Federal Reserve's forecast, reiterated last week, that the economy will grow at a ``moderate'' pace even with the increasing risks from volatile financial markets, reduced credit and the housing slump.

``From the consumers' standpoint, the economy is holding up pretty well, with solid job and income gains,'' said Mark Vitner, a senior economist at Wachovia Corp. in Charlotte, North Carolina. ``Fears about the consumer have been overblown.'' Wachovia correctly forecast the gain in sales.

Retail sales, which account for almost half of all consumer spending, were projected to rise 0.2 percent after an originally reported 0.9 percent decline in June, according to the median of 68 estimates in a Bloomberg News survey of economists. Forecasts ranged from a decline of 0.4 percent to a gain of 0.7 percent.

Sales excluding automobiles were forecast to increase 0.3 percent a previously reported 0.4 percent drop.

Stocks Gain

U.S. stock index futures extended gains and Treasuries dropped after the report. Futures on the Standard & Poor's 500 index rose 1.2 percent to 1,468. The yield on the 10-year Treasury note, which moves inversely to the price, rose to 4.83 percent from 4.81 percent at last week's close.

Today's report showed sales of electronics and appliances rose 1 percent after falling 1 percent. Sales at sporting goods, hobby, book and music stores increased 0.4 percent. Apple's iPhone and orders for ``Harry Potter and the Deathly Hallows,'' author J.K. Rowling's final installment in the series chronicling the adventures of a boy wizard, probably lifted demand in those categories, economists said.

Receipts at automobile dealerships and parts stores dropped 0.3 percent last month after slumping 2.9 percent in June.

General Motors Corp. and Ford Motor Co. last week cut their forecasts for U.S. industrywide sales of cars and trucks. Alan Mulally, Ford's chief executive officer, said the revised outlook reflects concern that sales may be pinched by the U.S. housing market and tightening credit.

Excluding Gasoline

Sales excluding gasoline increased 0.4 percent after falling 0.7 percent. Filling station sales fell 0.8 percent last month, perhaps reflecting the drop in fuel prices, economists said.

Purchases of housing-related goods held up last month. Sales rose 0.2 percent at stores selling building materials and garden supplies, while furniture purchases increased 0.5 percent.

Excluding autos, gasoline and building materials, the retail group the government uses to calculate gross domestic product figures for consumer spending, sales climbed 0.6 percent after rising 0.3 percent the month before. The government uses data from other sources to calculate the contribution from the three categories excluded.

Consumer spending, which makes up about 70 percent of the economy, slowed to a 1.3 percent annual pace in the second quarter, the weakest since 2005. The median estimate of economists surveyed by Bloomberg from Aug. 1 to Aug. 9 forecast spending will rise at an average 2.5 percent pace in the second half of the year.

Labor Market

A resilient labor market explains why economists project spending will stabilize even as the Standard & Poor's 500 index tumbled 7 percent since setting a record in July. Growing incomes are also supporting Americans buffeted by declining home values and credit restrictions, economists said.

Wages in July rose 3.9 percent from the same month a year earlier, according to a Labor Department report on Aug. 3. The gains are helping buoy sentiment, propelling the New York-based Conference Board's consumer confidence index to the highest in almost six years during July.

Fed policy makers last week held their interest-rate target at 5.25 percent for a ninth time and maintained that inflation was the ``predominant'' risk for the economy. They also reiterated a forecast for ``moderate'' growth even as declines in housing, restrictions to credit and volatile financial markets raised concerns about growth ``somewhat.''

Even with support from the labor market, consumer spending will probably grow well below the 3.7 percent pace per quarter average over the past decade, economists said. Falling home values will prevent owners from tapping into home equity, leaving consumers with less cash.

Gap Inc., Abercrombie & Fitch Co. and Limited Brands Inc. last week reported lower July sales. July same-store sales at U.S. retailers rose 2.6 percent, the International Council of Shopping Centers said today, trailing the group's forecast as consumers sought bargains at discount retailers.

To contact the reporter on this story: Joe Richter in Washington jrichter1@bloomberg.net

Last Updated: August 13, 2007 08:52 EDT