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UPDATE 1-Australia's Woolworths Q4 sales beat forecasts
* Core sales up 1.3 pct, total sales up 5.1 pct
* Results still likely to lag rival Coles
* No update on sale of Dick Smith electronics chain
* Shares up 1.5 pct in weaker market (Adds details of supermarket, Q4 sales, quote)
MELBOURNE, July 23 (Reuters) - Woolworths, Australia's largest supermarket chain, posted a stronger-than-expected 1.3 percent rise in same-store food and liquor sales in the fourth quarter, despite a tight spending environment and steep food price deflation.
"In a market characterised by subdued consumer confidence and with highly competitive trading conditions we increased market share, customer numbers and items sold," Chief Executive Grant O'Brien said.
Woolworth's core sales growth of 1.3 percent compared with forecasts of a rise of 0.3 percent, according to a Reuters survey of five analysts.
The news helped its shares rise 1.5 percent, against a fall of 1.1 percent in the broader market.
But that pace of growth is still forecast to trail sales at Woolworths' smaller rival, Coles, which is expected to post faster growth than Woolworths for the 12th straight quarter, when it reports on Thursday.
Coles and Woolworths -- which together control 80 percent of Australia's grocery sector -- have slashed the cost of basic items such as milk and bread to lure shoppers, and recently extended the price wars to fruit and vegetables.
Analysts expect at least three percent growth in core same-store sales at Coles, which relaunched its loyalty programme during the fourth quarter.
Woolworths also rejigged its rewards programme and cut prices during the quarter in response to Coles' moves.
The retailer said average prices at its supermarkets fell by 4.3 percent in the quarter, due to the heavy discounting and promotions.
Woolworths said total group sales, including discounter Big W, rose 5.1 percent in the fourth quarter to A$12.9 billion ($13.4 billion).
In the fourth quarter, sales at discount department store Big W rose 1.6 percent, helped by government cash hand-outs to households to stimulate the economy.
Woolworths gave no update on the sale of its electronics chain Dick Smith, which is suffering against no-frills chain JB Hi-Fi. Greenhill Caliburn is advising on the sale. ($1 = 0.9632 Australian dollars) (Reporting by Victoria Thieberger; Editing by Richard Pullin)
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