The dimensions of the pick-up remain uncertain

US Federal Reserve Chairman Alan Greenspan

The DoC added that retail sales contracted by 0.3% in January, compared to an initial estimate of -0.2%.

The strength of consumer spending, which accounts for two thirds of all economic activity in the US, is seen as a crucial indicator of overall economic well-being.

The DoC data put US shares under pressure, pushing the Dow Jones Industrial Average 0.38% lower to 10,591 in early trade.

Spending moderates

"There's a strong glass half-full, glass half-empty quality to this report," said Carey Leahy, senior economist at Deutsche Bank.

US retail sales growth for the January to March period is now expected to come in at about 2%, down sharply from 6% in the final three months of last year.

The decline is due in part to the expiry of attractive discount deals, particularly in the automotive sector, aimed at luring jittery consumers back into the malls in the wake of the 11 September attacks.

January's sharp contraction in retail sales growth, which followed a strong increase the previous month, was attributed largely to the end of zero-percent financing deals offered by many US carmakers.

Motor vehicle sales account for about 25% of the headline retail sales figure. Retail sales excluding the automotive sector grew by 0.2% in February.

Greenspan speaks

The latest retail figures reinforce recent warnings from senior policymakers that the US economy may take some time to recover fully from the recession which began in March last year.

On Wednesday, US Federal Reserve chairman Alan Greenspan reiterated his view that while an economic upturn is under way, the rebound may be gradual.

Speaking to a banker's association, Mr Greenspan said that the US economy is showing "encouraging signs" of strength, but warned that "the dimensions of the pick-up remain uncertain."

He also called on spendthrift American consumers to save more so as to reduce the US's reliance on foreign capital investment and control current account deficits.

Interest rate outlook

However, economists say the latest retail figures are unlikely to change the Fed's stance on interest rates.

Most still expect the US central bank to start raising the cost of borrowing in the second half of this year as the economic recovery gathers pace.

The Fed's rate-setting body is forecast to leave rates on hold at their current 41-year low of 1.75% when it next meets on 19 March.

The Fed cut interest rates aggressively last year in a bid to stave off recession.

US shoppers' willingness to spend, boosted in part by historically low interest rates, is credited with propping up the economy during the slowdown.

But economists have warned that the surge in consumer spending that has accompanied previous economic recoveries may not occur this time, because spending has remained buoyant throughout the downturn.