Euro zone shoppers increased spending in January, a surprise after four months of falls but economists said a quarterly reading that smoothes over the data still showed a large decline.

The European Union's statistics office said on Monday retail sales in the 17 countries using the euro rose 0.3 percent month-on-month and was unchanged year-on-year.

Economists polled by Reuters had expected a 0.1 percent monthly fall and a 1.6 percent annual decline.

Retail sales are an indication of household demand, which has long been the weak spot of the euro zone economy.

High unemployment, public spending cuts and uncertainty surrounding the bloc's debt crisis have hurt household budgets and encouraged consumers to keep their spending in check.

The series tends to be rather volatile from month to month so we prefer to look at the trend, said Ken Wattret, chief euro zone market economist at BNP Paribas.

On a three month on three month basis, sales contracted in January by 0.8 percent, matching the weakest performance since spring 2009, when the economy was coming out of the post-Lehman collapse, he said.

The three-month average year-on-year rate of change fell 0.9 percent, well down on the equivalent rate of change a year previously of 0.7 percent in January 2011, he said.


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The data differed substantially across the single currency area, showing a fall of 1.6 percent month-on-month in the euro zone's biggest economy, Germany, and jumping 2.1 percent in the second biggest, France.

Rising unemployment, tighter fiscal policy, subdued consumer sentiment, a squeeze on real incomes from higher commodity prices and high levels of uncertainty provide a combination of factors suppressing consumer spending at the euro zone aggregate level, Wattret said.

Euro zone joblessness rose to a new euro-era high in January while inflation, boosted by oil prices, was 2.7 percent year-on-year in February, against 2.6 percent in January -- well above the European Central Bank's target of below, but close to 2 percent.

The number of people out of work in the euro zone rose to 10.7 percent in January, against an upwardly revised 10.6 percent in December.

The European Commission expects the euro zone economy to start growing again only in the second half of the year.

(Reporting by Jan Strupczewski; editing by Rex Merrifield/Anna Willard)