Asda, the British arm of U.S. retailer Wal-Mart Stores Inc, posted a slowdown in sales growth in its fiscal fourth quarter as shoppers were squeezed by rising prices and muted wages growth and grew worried about the grim economic outlook.

Britain's second-biggest supermarket chain behind Tesco Plc said Tuesday sales at stores open more than a year, excluding fuel and VAT sales tax, rose 1 percent in the 14 weeks to January 7.

That followed a 1.3 percent increase in the third quarter, but compared favourably with many of its rivals.

Tesco reported a 2.3 percent drop in underlying UK sales for the six weeks to January 7, while industry No.3 J Sainsbury posted a 1.2 percent increase for the 14 weeks to January 7 and No.4 Wm Morrison a 0.7 percent rise for the six weeks to January 1.

Many Britons have been cutting back spending over the past year as price increases outpaced wage rises and higher unemployment weighed on confidence, and the lack of consumption has been one of the main drags on economic growth.

However, Friday official data showed retail sales rose unexpectedly in January.

That data, a string of strong business surveys and some stabilisation in the labour market have raised hopes that Britain's economy will avoid recession despite having contracted in the last three months of 2011.

Asda said underlying sales rose just 0.1 percent in the last three months of 2011, followed by a surge in demand in the first week of January, when British shops traditionally offer unsold stock at cheaper prices.

The chain, which trades from around 540 stores, lagged Britain's grocery market in 2010 but fought back in 2011, helped by its purchase of smaller format Netto stores and a re-launch of its own-brand food range.

It has also benefited from its price guarantee which offers to refund customers the difference, via a voucher, if an online price comparison website does not show their shopping was at least 10 percent cheaper than at a rival.

Wal-Mart, the world's biggest retailer, reported a 1.5 percent rise in underlying sales at its main U.S. business.

(Reporting by James Davey and Mark Potter; Editing by David Holmes)