By Promit Mukherjee

OTTAWA (Reuters) -Canada’s retail sales grew 0.4% in September as consumers spent more at grocery stores and supermarkets, data showed on Friday, and ensured the first quarterly increase in sales this year.

The month on month increase in September was the same pace of growth as in August but is likely to be followed by a rise of 0.7% in October, a preliminary estimate by Statistics Canada said.

For the third quarter as a whole, sales rose 0.9%, the data showed.

The robust October number suggests that the fourth quarter could start on a strong note and help prop up economic growth, which the Bank of Canada has been aiming for with recent rate cuts.

Retail sales fell in the first two quarters of the year, underscoring consumer budgets were buckling under the pressure of high interest rates and inflation.

“Canadian consumers seemed to have found their footing in the second half of the year,” Shelly Kaushik, an economist at BMO Capital Markets, wrote in a note.

The BoC has trimmed its interest rate by 125 basis points since June to 3.75% as inflation has consistently cooled and that seemed to be helping boost consumer spending, Kaushik said.

Currency markets trimmed their bets for a 50 basis point reduction in interest rates next month to around 14% from 21% before the data was released. They see a 86% chance of a 25 basis point rate cut on Dec. 11.

Retail sales, which comprise purchases of motor vehicles, clothing, furniture, food and beverages among others, grew by 0.4% in September on a monthly basis, Statscan said.

This was similar to the rise seen last month and matched estimates by analysts, with the total value of sales at C$66.94 billion ($47.91 billion).

Core retail sales, which exclude sales at gasoline stations and fuel vendors and motor vehicle and parts dealers, were up 1.4% in September, the statistics agency said.

In volume terms sales rose up 0.8% in September.

The bulk of the growth came from transactions seen at food and beverage retailers, which contribute around a fifth of the total retail sales. They grew by 3% in September.

This increase was led by gains at supermarkets and other grocery retailers which were up 3.3% and higher receipts at beer, wine and liquor retailers, which were up for the first time in three months, Statscan said.

Other sectors also contributed with six out of nine subsectors in the retail sales category posting growth in sales, the data showed.

The subsectors which saw a drop were motor vehicles and parts dealers, sales at gasoline stations and clothing and accessories.

($1 = 1.3971 Canadian dollars)

(Reporting by Promit Mukherjee and Dale Smith; editing by Philippa Fletcher and Susan Fenton)

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