May 30, 2012 / 2:42 AM / 5 years ago

UPDATE 1-Australian retail sales disappoint, construction solid

* Retail sales fall 0.2 pct in April from March

* Construction work up in Q1, thanks to 13.3 pct jump in engineering

* Australian dollar falls on retail sales data

By Ian Chua

SYDNEY, May 30 (Reuters) - Australian retail sales snapped three months of gains to drop 0.2 percent in April from the previous month as consumers spent less at department stores and on household goods, a disappointing result that weakened the local currency.

But other data out on Wednesday showed construction work rose a solid 5.5 percent in the first quarter from the previous three-month period, all thanks to a 13.3 percent surge in engineering.

The data highlights the divide in the economy between the booming mining sector and struggling non-mining industries. First-quarter GDP data due next Wednesday will add further clarity to the picture, although it will come a day too late for the central bank's next policy meeting on June 5.

"It shows the patchwork economy, with strong construction data benefiting from the mining sector and weak retail numbers hurt by the non-mining sector," said Michael Blythe, chief economist, Commonwealth Bank of Australia.

"We believe the Reserve Bank of Australia (RBA) will keep its easing bias with the next move probably in August."

The Australian dollar shed about 40 pips to a session low around $0.9770 as investors reacted with disappointment to the data.

Australia is enjoying a truly massive boom in resource investment as miners rush to meet demand from the urbanizing masses of China and India.

However, a high local dollar and subdued global growth mean other parts of the economy are struggling. Indeed, the breakdown of Wednesday's data showed building construction fell 5.0 percent, following a 1.2 percent decline in the previous quarter.

A survey from the Housing Industry Association (HIA) on Tuesday showed new home sales posted a modest bounce in April after a very weak end to the first quarter.

"We keep hearing that Australia is one of the world's strongest economies in aggregate. That's a redundant concept if people on the ground aren't feeling and experiencing that, and they haven't been for quite some time," said Harley Dale, chief economist at HIA.

"Further interest rate cuts are required and the Reserve Bank should just get on with the job on June 5th."

Early this month, the Reserve Bank of Australia cut its cash rate by an aggressive 50 basis points to 3.75 percent.

Interbank futures <0#YIB:> are fully priced for a follow-up 25-basis-point-easing next week, and have even partially discounted a deeper 50-basis-point-cut.

However, domestic factors appeared to have played only a minor role in motivating markets to price in the rate cuts. The major driver has been fears of a potential Greek exit from the euro zone, which would deal a severe blow to the fragile global recovery. (Reporting by Ian Chua; Editing by Ramya Venugopal)

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