UPDATE 1-US retail sales unexpectedly declined in December

(Adds details, market reaction)

WASHINGTON, Jan 15 (Reuters) - Sales at U.S. retailers fell 0.4 percent in December and were less vigorous in November than previously thought, according to a government report on Tuesday that implied costlier energy and slumping housing prices were taking a toll on consumers.

Retail sales for all of 2007 posted their smallest gain in five years.

The dollar's value fell against the euro and the yen as investors bet U.S. interest rates will have to be lowered further in a bid to ward off a U.S. economic downturn.

U.S. government debt prices rose and stock index futures extended losses on the soft sales data.

Excluding autos, the Commerce Department said December sales still were down 0.4 percent. Wall Street economists surveyed by Reuters had forecast that overall sales and sales excluding automobiles would be unchanged in December.

Sales at gasoline stations dropped 1.7 percent in December after rising 7.6 percent in November.

The department revised down November's retail sales gain to show a 1 percent rise rather than the 1.2 percent gain it reported a month ago.

For all of 2007, department officials said retail sales were up 4.2 percent, a significantly softer gain than the 5.9 percent increase posted for 2006 and the weakest annual gain since a 2.4 percent rise in 2002.

Consumers have been a mainstay of the economy, continuing to spend despite rising gasoline and other costs, so the fresh signs of a pullback by shoppers are likely to fuel fears of recession.

Sales in department stores fell 0.4 percent in December following a 0.5 percent gain in November.

Sales at clothing stores dropped 2 percent in December following a 1.6 percent November gain and sporting-goods sales also were down 2 percent last month after a 1.1 percent November. Both are categories of goods that typically are bought as Christmas presents but shoppers were much more wary in 2007 about spending.

Sales of new cars and parts fell 0.4 percent last month on top of a 1.4 percent drop in November. (Reporting by Glenn Somerville; editing by Neil Stempleman)