* RBA keeps rates at 3 pct for second policy meeting
* Retail sales up 0.9 pct, beating forecasts for 0.4 pct
* Current account deficit narrows, net exports add to Q4 GDP (Adds market reaction)
By Wayne Cole
SYDNEY, March 5 Australia's central bank kept its main cash rate at a record low of 3.0 percent on Tuesday, as expected, but reiterated there was room to cut if needed given a benign outlook for inflation.
The Australian dollar edged higher as the market had seen a slender chance of a cut from the Reserve Bank of Australia (RBA) at its March policy meeting.
In a near carbon copy of his February statement, RBA governor Glenn Stevens said it was prudent to hold steady as the impact of past cuts had yet to be fully felt. He also cited a major improvement in financial markets and signs of stabilisation in the economies of China and the United States.
Yet neither did he close the door to further action.
"The inflation outlook, as assessed at present, would afford scope to ease policy further, should that be necessary to support demand," said Stevens.
"During 2012, there was a significant easing in monetary policy," he noted. The central bank cut rates by 125 basis points last year.
"Though the full impact of this will still take more time to become apparent, there are signs that the easier conditions are having some of the expected effects."
Financial markets had only seen a slim chance of an easing this month, while a Reuters poll of 23 analysts had found all but one expected the RBA to hold steady.
Investors continue to wager on at least one more cut this year, although they slightly pared back the extent of any move.
"If the data does soften quite considerably over the coming months, the RBA will provide a more accommodative stance on policy and that's something we expect the Board to do," said Tom Kennedy, an economist at JPMorgan.
"At this stage we have them lowering the cash rate by 25 basis points in May, taking it to a terminal 2.75 percent."
BUSIER SHOPS, EXPANDING EXPORTS
Figures out earlier Tuesday suggested lower rates were indeed giving consumers the confidence to open their wallets.
The Australian Bureau of Statistics reported retail sales jumped 0.9 percent in January, more than twice the gain forecast and the biggest increase in seven months.
There were healthy rises in discretionary spending on household goods, clothing and restaurants.
That's promising news as the A$260 billion ($265 billion) retail sector accounts for 17 percent of Australia's A$1.5 trillion in annual economic output and, with 10 percent of all jobs, is the second-largest employer after healthcare.
Other figures showed that the long boom in mining investment was fuelling an expansion in resource exports. While investment is likely to peak later this year, the export pickup has some years to run yet.
Export volumes jumped 3.4 percent last quarter to A$82.9 billion as the country shipped more iron ore and coal to Asia. That meant net exports, or exports minus imports, added a solid 0.6 percentage point to economic growth in the quarter.
The government's report on gross domestic product (GDP) is due out on Wednesday and analysts generally expect an increase of 0.6 percent in the fourth quarter.
That would put growth for calendar 2012 at 3.0 percent, still far ahead of most other developed nations. Comparable growth for the United States was 1.6 percent, Canada 1.1 percent and the UK 0.25 percent, while the euro zone economy shrank by 0.9 percent. (Reporting by Wayne Cole; Editing by Shri Navaratnam and Richard Pullin)