* Retail sales up 0.1 pct, expectations were +0.5 pct * Third straight monthly increase * September, Q3 GDP on Nov. 30 looking tepid * C$ edges lower By Randall Palmer OTTAWA, Nov 22 (Reuters) - Canadian retail sales edged up by 0.1 percent in September from August, Statistics Canada said on Thursday, a result which moved the Canadian dollar marginally lower as the gain was substantially weaker than the expected 0.5 percent increase. It was the third straight monthly increase and took sales to a record C$39.14 million ($39.14 million) from C$39.08 million in August, seasonally adjusted, but it took the market aback. Twenty-three of 24 forecasters surveyed by Reuters expected growth of 0.3 percent or more. The volume of sales, which is important in calculating real growth in gross domestic product, showed no measurable increase. Year-on-year, retail sales were 1.8 percent higher in dollar terms and 1.3 percent in volume. "In volume terms, the flat print adds little support for the month's GDP (gross domestic product), coming after a weak wholesale trade number earlier in the week," said Emanuella Enenajor at CIBC World Markets. Wholesale trade fell 1.4 percent in September. Statscan is releasing September and third quarter real GDP data on Nov. 30, and a number of economists said the third quarter would struggle to hit the Bank of Canada's forecast of annualized growth of 1.0 percent. SQUISHY GDP? The central bank forecasts a strong pickup to at least 2.5 percent in the fourth quarter and beyond, but economists were beginning to question that. "While the Bank (of Canada) expects a more robust rebound in GDP in the next several quarters, we believe that this will not occur until the second half of 2013," said Mazen Issa, Canada macro strategist at TD Securities. "In the near term, consumption spending is expected to remain a modest contributor to growth as households remain cautious in the face of higher debt levels and a cooling housing market." In the wake of the retail report, the Canadian dollar softened to C$0.9974 to the U.S. dollar, or $1.0026. This was slightly higher than Wednesday's North American close at C$0.9965, or $1.0035. Later in the morning, it recouped some of its losses. September's increase in retail sales was led by a 0.6 percent rise in the auto sector; excluding them sales were flat. "Half of the gain in retail spending is simply due to purchasing new vehicles. It's hard to resist those interest free loans on some models," said Sal Guatieri, senior economist at BMO Capital Markets. The miscellaneous category, which includes used merchandise, office supplies and pet supplies, showed the biggest percentage increase, at 2.5 percent. Clothing rose after three consecutive falls, food was up for the fourth time in five months, and electronics and appliances also increased. General merchandise stores and gasoline stations were down.