(Adds manufacturing data, analyst comments, updates markets)

* Retail sales accelerate 5.3% in January

* Core retail sales jump 6.0%

* Producer prices surge 1.3%, biggest gain since 2009

* Manufacturing production increases 1.0%

By Lucia Mutikani

WASHINGTON, Feb 17 (Reuters) - U.S. retail sales reboundedsharply in January after households received additional pandemicrelief money from the government, suggesting a pick-up ineconomic activity after being restrained by a fresh wave ofCOVID-19 infections late last year.

The largest gain in retail sales in seven months reported bythe Commerce Department on Wednesday was across the board, andended three straight monthly decreases. The acceleration inactivity at the start of 2021 was evident in other data showingstrong growth in production and prices at factories last month.

Still, the solid economic data did not argue againstPresident Joe Biden's $1.9 trillion recovery plan. Millions ofAmericans remain unemployed. Though COVID-19 infection andhospitalization rates have declined, new strains of the viruspose a risk to the economy fully reopening.

"The economy picked up steam in January and inflation camealong for the ride," said Joel Naroff, chief economist at NaroffEconomics in Holland, Pennsylvania. "Since President Biden isintent on getting a major bill through, look for that to happenand for government money to continue to get into the hands ofhouseholds and businesses."

Retail sales surged by a seasonally adjusted 5.3% last monthafter decreasing 1.0% in December. Economists polled by Reutershad forecast sales increasing 1.1% in January.

Retail sales increased 7.4% from a year ago. Sales lastmonth were led by motor vehicles, with receipts at autodealerships accelerating 3.1%. Sales at clothing stores soared5.0%. Consumers also stepped up spending at restaurants andbars, boosting receipts 6.9%. Still, sales at restaurants andbars were down 16.6% compared to January 2020.

Receipts at electronics and appliance stores powered ahead14.7% and sales at furniture stores surged 12.0%. There werealso hefty increases in sales at sporting goods, hobby, musicalinstrument and book stores.

Receipts at food and beverage stores rose solidly, as didthose at building material stores. Online retail sales jumped11.0% after dropping 7.3% in December.

The government approved another coronavirus rescue packageworth nearly $900 billion at the end of December, which included$600 checks to mostly low-income and some middle-incomeAmericans. The bulk of the money was disbursed in early January,which supported discretionary spending last month.

The package also extended a government-funded weeklyunemployment subsidy as well as benefits for millions of peoplewho do not qualify for state unemployment programs as well asthose who have exhausted their six months of eligibility. Thesebenefits are set to expire in mid-March.

As with the previous stimulus checks, consumers saved a bigchunk of the latest payouts.

"Less than a quarter of the stimulus check funds werequickly spent at retailers," said Michael Feroli, chief U.S.economist at JPMorgan in New York. "We estimate that thepersonal saving rate moved up to around 20% last month."

Some of the sharp rebound was technical. The model used bythe government to strip out seasonal fluctuations from the datatypically anticipates a bigger post-holiday season drop inretail sales in January. The drop in unadjusted sales was thesmallest since 1992, contributing to the big rise in theseasonally adjusted retail sales.

Excluding automobiles, gasoline, building materials and foodservices, retail sales jumped 6.0% last month after decreasing2.4% in December. These so-called core retail sales correspondmost closely with the consumer spending component of grossdomestic product.

U.S. stocks fell. The dollar rose against a basket ofcurrencies. U.S. Treasury prices were higher.

INFLATION BUILDING UP

Further gains in sales are expected in the months ahead. TheBiden administration's recovery plan, under consideration in theU.S. Congress, will include an additional $1,400 check tohouseholds. The distribution of vaccines is improving, whichshould allow more restaurants and other consumer-facingbusinesses to reopen in the spring.

Americans are sitting on $2.38 trillion in savings, which isexpected could unleash pent-up demand for services like airtravel and hotel accommodation, hardest hit by the pandemic.

In a separate report on Wednesday, the Federal Reserve saidmanufacturing production rose 1.0% last month after gaining 0.9%in December. The ninth straight monthly advance in factoryproduction was despite a shortage of semiconductors weighing onthe output of motor vehicles.

Solid manufacturing and robust core retail sales lefteconomists to anticipate first-quarter GDP growth well above the4.0% annualized rate logged in the fourth quarter.

"The blow-out retail sales report puts in place some initialstrong scaffolding for growth in the first quarter of 2021,"said Brian Bethune, an economics professor at Boston College."Underlying growth momentum is building as the third seasonalwave of the pandemic has moved over the hump, and thevaccination program is being accelerated."

Firming economic activity is starting to boost inflation. Ina third report, the Labor Department said its producer priceindex for final demand jumped 1.3% last month, the biggest gainsince December 2009. That followed a 0.3% rise in December.

Inflation is being watched amid concerns from some quartersthat Biden's recovery plan could cause the economy to overheat,though much will depend on the labor market.

"We do not yet have a tight labor market," said Chris Low,chief economist at FHN Financial in New York. "Not even close."

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama andAndrea Ricci)