US RETAIL sales edged down 0.1 per cent in July on a big drop at car dealers, the government said yesterday in a report suggesting consumers were straining to keep spending up amid rising prices.

A separate report showed a bigger than expected jump in import prices, underlining the pressure costlier oil was putting on the US economy. Over the past 12 months, import prices have soared 21.6 per cent - the biggest gain in 26 years.

The drop in retail sales reported by the US commerce department was the first since February and suggested a big boost to spending from government stimulus checks was fading. Car sales fell 2.4 per cent, the biggest drop since April, and were off 10.5 per cent from a year ago. "Going forward, a tight credit environment, a deteriorating labour sector and elevated prices will act as a significant constraint on consumption," said Joseph Brusuelas, chief economist at Merk Investments.

US stocks extended losses as rising oil prices added to worries fuelled by the retail sales data. Import prices rose 1.7 per cent in July, the labour department said. Petroleum prices were up 4 per cent from June and were a huge 79.2 per cent higher than in July 2007, while non-petroleum import prices gained 0.9 per cent for a second consecutive month.

"There is potential inflation outside of oil and the credit markets get a little nervous when they believe that food and energy price inflation might spread," said Gary Thayer, senior economist at Wachovia Securities in St Louis, Missouri.

The Federal Reserve's policy-making Federal Open Market Committee decided to keep its trendsetting discount rate at a low 2 per cent, aiming to help a weak economy as long as possible while global oil prices are moderating.

Prices for goods imported from China - a key supplier of US consumer products - climbed 0.9 per cent in July and were up 5.3 per cent in the past year. - ( Reuters)