7 percent in August after a 0.2-percent drop in July, the Commerce Department said, beating economist expectations.

The rise was driven partly by an uptick in demand for cars that has been attributed to the government's popular cash-for-clunkers programme over the summer months. Excluding automobiles, retail sales climbed 1.1 percent.

The blue-chip Dow Jones Industrial Average gained 56.61 points, or 0.59 percent, to 9,683.41. The broader Standard and Poor's 500 picked up 3.29 points, or 0.31 percent, to 1,052.63. The technology-heavy Nasdaq Composite Index rose 10.86 points, or 0.52 percent, to 2,102.64.

The US currency fell against the euro to 68.20 euro cents from 68.36 euro cents on Monday. The dollar climbed to 91.06 Japanese yen from 90.90 yen.