U.S. October retail sales beat expectations, prior month revised up

- U.S. retail sales rose more than expected in October as households bought motor vehicles and a range of other goods, pointing to sustained economic strength that could allow the Federal Reserve to raise interest rates next month.

The Commerce Department said on Tuesday retail sales increased 0.8 percent last month, also boosted by demand for building materials likely as households cleaned up and made repairs in the wake of Hurricane Matthew.

September retail sales were revised upward to show a 1.0 percent increase instead of the previously reported 0.6 percent rise. The combined September and October sales gain was the largest two-month rise since early 2014.

Sales were up 4.3 percent from a year ago. Excluding automobiles, gasoline, building materials and food services, retail sales jumped 0.8 percent last month after an upwardly revised 0.3 percent gain in September.

These so-called core retail sales, which correspond most closely with the consumer spending component of gross domestic product, were previously reported to have risen 0.1 percent in September.

Economists had forecast overall retail sales increasing 0.6 percent and core sales advancing 0.3 percent last month.

The retail sales report added to data this month showing a rapidly tightening labor market and signs of turnaround in the manufacturing sector in underscoring the economy's strength at the start of the fourth quarter.

It also bolstered views that the Federal Reserve will raise interest rates at its Dec. 13-14 policy meeting.

The Fed this month left interest rates unchanged but said its monetary policy-setting committee "judges that the case for an increase in the federal funds rate has continued to strengthen." The U.S. central bank raised its benchmark overnight interest rate last December and has held it steady since, largely because of concerns over low inflation.

The economy grew at a 2.9 percent annualized rate in the third quarter. The Atlanta Fed is currently forecasting the economy growing at a 3.1 percent annualized rate in the fourth quarter.

Last month, auto sales rose 1.1 percent after increasing 1.9 percent in September. Retail sales were also boosted by receipts at service stations, which advanced 2.2 percent as gasoline prices increased.

Sales at building material stores increased 1.1 percent.

Receipts at online retailers surged 1.5 percent. Sales at restaurants and bars, however, fell 0.7 percent, likely as the stormy weather kept people at home. Receipts at sporting goods and hobby stores rose 1.3 percent.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)