(Recasts lead, adds analysts comments, background.)
By Gilbert Le Gras
OTTAWA, Nov 22 (Reuters) - Sagging September retail sales capped a week of reports that suggest Canada's healthy economic growth is beginning to pale, easing pressure on the Bank of Canada to raise interest rates again, analysts said on Friday.
Statistics Canada said the unexpected 0.5 percent slip in retail sales was likely due to delayed buying of winter clothes because of a warmer than usual September but RBC Financial Group's Derek Holt said the report was "discouraging" as weaker consumer spending was widespread.
"After other numbers this week that highlighted emerging weakness in business investment and wholesale trade, alongside well-behaved core inflation, today's drop in retail sales tosses another cloud on to the forecasting horizon," said Holt, RBC Financial Group's assistant chief economist.
While September sales of shoes clothing and automobiles were all down, overall retail sales for the third quarter were ahead 0.7 percent. That compares with a rise of 0.8 percent in the April-June second quarter but well off the first quarter's 2.6 percent surge.
"That gives the Bank of Canada further room to hold off on any talk of rising rates," Holt added.
The Bank of Canada has raised its benchmark overnight interest rate three times for a total rise of 75 basis points this year, to 2.75 percent.
The bank sets rate to try to keep inflation at the mid-point of its 1 percent to 3 percent inflation range. Core inflation for October was reported this week at 2.5 percent.
Canada's overnight interest rate is 1.5 percentage points higher than the comparable U.S. rate after the Federal Reserve cut its fed funds rate two weeks ago by 50 basis points to 1.25 percent -- a widening spread that has had little effect on the Canadian currency.
"The retail sales number that came out was slightly below expectations but certainly not reason to sell the currency ," said a currency trader at a Canadian bank.
The trader added that option expiries on Friday morning were keeping the lid on substantial movements by the Canadian dollar.
After robust economic growth in the first and second quarters, analysts said that Friday's retail sales data underscores the view that growth in Canada's gross domestic product is slowing.
"The September retail sales report suggests that real GDP advanced 0.2 percent in the month and 3 percent to 3.25 percent annualized in the third quarter," said Sal Guatieri, senior economist at BMO Financial Group.
Market attention is now turning to the release of third-quarter GDP data, scheduled to be released at 8:30 a.m. (1330 GMT) on Nov. 29.
Indicators this week point to a slowdown in Canada's export-oriented auto sector, which is deeply integrated into the U.S. just-in-time production chain, and accounts for roughly half of Canada's manufacturing output.
Statscan said this week that September was the second month in a row to show a drop in auto exports -- down 5.8 percent -- to the United States, where the economy is struggling.
Canada ships about 85 percent of all its exports to the United States in what is the world's biggest bilateral trade relationship.
Other signs of potential easing in domestic growths include unfilled manufacturers orders, down 0.9 percent in September, and a 1.2 percent fall in new orders on a fall in demand from the transportation equipment sector.
($1=$1.58 Canadian)