UPDATE : Australia's Weak Retail Sales Boost Case For Rate Cut

--Australian consumers subdued over Christmas

--Economists say RBA likely to cut rates again

(Updates with new detail and reaction throughout)

By Enda Curran

Of Dow Jones Newswires

Australian consumers remained subdued over the Christmas holiday shopping period, bolstering the case for the central bank to cut interest rates for the third time since November.

Retail sales declined 0.1% to a seasonally adjusted A$20.88 billion in December from A$20.91 billion in November, the Australian Bureau of Statistics reported Monday. Economists surveyed ahead of the announcement had on average expected a 0.1% rise. The December figure was only modestly up from A$20.36 a year earlier.

The report also showed that in chain volume terms, retail sales rose 0.4% in the fourth quarter from the third, compared with expectations for a 0.6% increase.

Those soft numbers will disappoint the Reserve Bank of Australia, which lowered its overnight target both in November and December citing, among other things, weak demand on the high street. Many economists expect the bank to ease policy again when it holds its first meeting of the year on Tuesday.

"It seems reasonable to think that today's retail numbers would contribute to the case for a further rate cut," said Paul Bloxham, HSBC's Australia Chief Economist.

Shoppers overall were buoyant in the mining state of Western Australia where retail sales increased by 1.8% on month, the ABS data showed. On the eastern seaboard, however, growth was either modest or flat. And while clothing and footwear sales combined across the country saw a lift of 3.5% on month, spending on food items fell 0.7%.

A cautious mood has gripped Australian shoppers in recent years as households seek to pay down debt and lift their savings rates--even as the broader economy has so far escaped the worst of a global slowdown. Some of the softness in retail demand is blamed on the country's high exchange rate, which has prompted more consumers to buy online, as well as travel offshore to do their shopping.

But economists also noted that official statistics tend to underestimate the underlying strength of consumption, given that the monthly survey doesn't capture some areas of the economy that have seen increases in spending--for example, certain healthcare- and insurance-related services.

"That said, the weaker-than-expected result in December indicates that the rate cuts in November and December did not provide a fillip to this part of spending," said Citi economists in a note.

Also released Monday were figures showing that the total number of job advertisements in Australian newspapers and on the internet jumped 6% in seasonally adjusted terms in January compared with December--adding to the picture of a stabilising jobs market, which saw little growth in new positions through 2011.

"This tentative improvement in job ads is very encouraging and is being driven by acceleration in the mining regions of Australia," said Ivan Colhoun, head of Australian Economics and Property research at ANZ, who compiled the report.

   By Enda Curran, Dow Jones Newswires; 61 2 8272 4687; enda.curran@dowjones.com