BRUSSELS (AFP) - The strongest sales gain in the EU and the eurozone was recorded in Sweden.

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Retail sales in the 16-nation eurozone fell by 0.3 percent in January, a slightly better performance than expected, the Eurostat statistics office data showed on Wednesday.

Analysts polled by Dow Jones Newswires had predicted a fall of 0.5 percent in January, as cash-strapped consumers resisted the temptations of the January sales after the annual Christmas splurge.

Retail sales also dropped by 0.3 percent in the 27-nation European Union as a whole.

"Discretionary spending appears to have been particularly muted in January as sales of non-food products fell by 0.6 percent month-on-month and 1.5 percent year-on-year," said Howard Archer, chief economist at London-based IHS Global Insight.

Even allowing for the very bad weather in January "the soft data maintain suspicion that consumer spending is likely to be pretty muted across the eurozone over the coming months, thereby limiting overall growth prospects," Archer added.

Last January the sales rose in both the EU and the eurozone.

This time round the strongest sales gain was recorded in Sweden, up 3.4 percent while the worst performance was by Latvia, where retail sales were down 16 percent over the month with Lithuania and Romania also recording double-digit falls.

Compared with January 2009, retail sales fell 1.3 percent in the eurozone and 1.6 percent in the wider European Union.

High unemployment rates across the eurozone, likely muted wage growth over the coming months and the ending of car scrappage schemes will likely limit the upside for consumer spending, analysts said.

And despite tax cuts in Germany, in general will provide some support to consumer spending, but in general fiscal policy will be increasingly less supportive this year and will be tightened significantly "sooner or later in many countries," said Archer.