By Stella Qiu

SYDNEY (Reuters) - Australian retail sales rebounded more than expected in August after a soft July as unusually warm weather brought forward spring spending, a possible sign consumers are dipping into extra income from recent tax cuts.

Data from the Australian Bureau of Statistics (ABS) on Tuesday showed retail sales rose 0.7% in August from July when they edged up 0.1%. Analysts had looked for a rise of 0.4%.

The beat sent the Australian dollar 0.25% higher to $0.6930, just a touch below its 1-1/2 year peak of $0.6943.

Sales were up 3.1% on a year earlier at A$36.5 billion ($25.26 billion), a still subdued result given Australia's rapid population growth.

"This year was the warmest August on record since 1910, which saw more spending on items typically purchased in spring," said Robert Ewing, ABS head of business statistics.

"This included summer clothing, liquor, outdoor dining, hardware, gardening items, camping goods and outdoor equipment."

The Reserve Bank of Australia (RBA) has raised interest rates 425 basis points to 4.35% since May 2022 to tame inflation and slow demand. Headline inflation slowed to 2.7% in August, back in the target band of 2-3%, in part due to government electricity rebates.

However, the RBA has been wary that consumption could pick up more than expected as real incomes turn positive thanks to the government's sweeping tax cuts in July, giving average wage earners an extra A$1,500 a year.

Sean Langcake, head of macroeconomic forecasting for Oxford Economics Australia, expects some payback in the September figures.

"There are some early signs that income tax cuts are helping boost consumer spending. Retail sales have outperformed expectations in each of the last two months, maintaining a relatively high level last month and recording strong growth in August."

Card data from big banks, however, suggests consumers are not splurging on tax cuts so far. Data from Westpac showed spending has been relatively steady through September while the Commonwealth Bank of Australia noted that consumers were using tax cuts to pay down their mortgages.

Swaps imply a 60% chance that the RBA will lower the 4.35% cash rate in December, even though the central bank has ruled out a rate cut by the year end.

The red-hot property market, which had fuelled concerns that financial conditions were not tight enough, is also losing momentum, having recorded just a 0.4% monthly gain in September.

(Reporting by Stella Qiu; Editing by Sam Holmes)