WRAPUP 4-US retail sales in record fall, but sentiment up

* Retail sales drop 2.8 percent in Oct

* Nov consumer confidence up to 57.9 from 57.6 in October.

* Import prices down 4.7 percent in Oct (Updates with closing market levels in New York)

By Alister Bull

WASHINGTON, Nov 14 (Reuters) - Sales at U.S. retailers suffered a record decline in October as fears of recession sapped spending, but part of the drop was due to slumping gasoline prices which helped buoy consumer confidence.

The Commerce Department said on Friday that retail sales slumped 2.8 percent in October to a seasonally adjusted $363.7 billion, the largest decline since the department's current methodology was adopted in 1992, as mounting unemployment hit shoppers' appetites.

A separate Reuters/University of Michigan November survey of consumers showed that confidence unexpectedly rebounded from a record October drop as tumbling gas prices offset worries about the economy.

While lower gas prices were welcome, declines in a broad number of retail sales categories showed consumers were still on the defensive.

"What you are seeing now is the turmoil in the credit and funding markets playing out into the consumer sector," said Kevin Flanagan, fixed income strategist, global wealth management at Morgan Stanley in Purchase, New York.

Consumer spending is a crucial driver of U.S. growth and stocks fell sharply, with the Dow Jones industrial average .DJI ending 337.94 points, or 3.82 percent lower at 8,497.31.

The dollar rose, aided from its role as a safe haven in a deteriorating global investment climate, while U.S. Treasury notes advanced in price for the same reason and because a weaker economy theoretically favors such fixed income assets.

Economists polled by Reuters forecast a 2.0 percent fall in October retail sales as the escalating financial crisis took a toll on consumers. Retail sales last month were down 4.1 percent from a year ago.

Sales excluding autos fell a record 2.2 percent in October versus a forecast of a 1.2 percent decline.

Lower gasoline prices, as crude oil retreated sharply from a July peak around $147 a barrel, helped depress sales at gas stations by a record 12.7 percent in October. As a result, a closely watched core measure of retail sales excluding autos and gasoline fell 0.5 percent in October.

"Take out cars and gas, it's a drop of half a percent. It's not good, but it's not horrific. This could have been worse; it's encouraging that it wasn't," said David Resler, chief economist at Nomura Securities in New York.

The sharp drop in gasoline station sales may also have reflected fewer miles driven by Americans last month.