American investors, rattled by corporate scandals and slowing economic growth, have found some relief in a set of buoyant US retail sales figures.

The US Department of Commerce said retail sales including car purchases rose 1.2% between June and July, in line with analysts' expectations.

Excluding cars, retail sales climbed by a more moderate 0.2%.

The Commerce Department also revised upwards its initial estimate for retail sales growth in June to 1.4% from 1.1%, a figure that had come as a disappointment to stock traders and analysts.

Keep on shopping

Economists said the latest sales data showed that the American consumer remains ready to spend despite plunging share prices and weakening economic growth.

This strong report should put the nail in the coffin of a need for another Fed rate cut

Richard Yamarone Argus Research Corp

"It's a reminder that the consumers are not dead yet," said Christopher Low, chief economist at FTN Financial in New York.

The numbers helped to allay fears that the US stock market slump, which has wiped about a third off the value of blue-chip shares since the beginning of the year, had started to hit US consumers in the wallet.

Earlier this month, a closely watched survey showed that US consumer confidence had slipped, and some analysts had predicted that retail sales would follow suit.

Rate cut outlook

A second indicator of US economic health will come at about 1815 GMT, when the Federal Reserve is due to announce its latest monthly interest rate decision.

Tuesday's decision on rates has become one of the most eagerly anticipated economic announcements of the year.

Most analysts expect the Fed to leave borrowing costs on hold at their current 40-year low of 1.75%.

But they will be scrutinising the statement accompanying the Fed's interest rate announcement for signs of a change in its assessment of the economic situation.

Since March, the Fed has adopted a 'wait and see' approach on rates, saying that it is prepared to raise or cut the cost of borrowing as conditions require.

Many analysts believe the Fed will use Tuesday's meeting to signal that it has become more inclined to cut rates in the months ahead because of deteriorating economic conditions.

This would be interpreted as a sign that the US central bank had downgraded the economy's growth prospects, and could put share prices under fresh pressure.

No more cuts?

However, some analysts believe the latest US sales figures have weakened the case for further rate reductions.

"This strong report should put the nail in the coffin of a need for another Fed rate cut," said Richard Yamarone of Argus Research Corp. in New York.

In the spring, when the US economy appeared to be rebounding strongly from last year's downturn, the Fed had been expected to start raising rates from their current 40-year low of 1.75% during the second half of the year.

But a string of weak economic data - including disappointing new job figures and far lower than expected economic growth during the April to June period - have changed all that.

Economists have now all but ruled out a rate increase this year, with some predicting one or more cuts.

New look summit

Mounting concerns over the economy have prompted US President George W. Bush to hold a round of talks with small business owners in an attempt at thrashing out a recovery plan.

Secretary Paul O'Neill has told the presidential economic summit that there was room for optimism.

"I see lots of reasons to be positive," Mr O'Neill told a panel, citing factors the strong car sales.

The meeting, billed as an economic summit, but derided by Mr Bush's opponents as a political gimmick, is taking place in Waco, Texas.