The economy gave off mixed signals Sunday, with consumer spending a bright spot amid a rising unemployment rate and declining foreign trade and industrial output, according to the Central Bureau of Statistics.

Retail sales were up 2.8% on an annualized basis in the December-February period and hotel stays by Israelis, in contrast with foreign tourists, rose at a 6.2% rate.

Meanwhile, the Bank of Israel said Sunday it would hold its base lending rate unchanged at 1.75% for the next month as it affirmed its December forecast for economic growth.

"Updated indicators of economic activity in February point toward continuation of the signs of improvement that began to be seen in January, but it is still too early to determine if this is a positive turning point," the central bank said.

It warned that one of the "sources of uncertainty" is the state budget, saying the government faces a massive deficit that will have to be tackled through deep spending cuts and tax hikes. (See story below.)

Economists said signs of a better U.S. economy and concerns about a housing bubble at home would deter the central bank from lowering interest rates any time in the foreseeable future.

"The global environment is gradually improving in general and in the United States in particular," said Jonathan Katz, an economist at Leader Capital Markets. "Israel is expected to see accelerating growth in the second half of the year."

Haim Natan, chief economist at Menorah Insurance, said a rate cut would not be warranted under the current circumstances.

"Only a strengthening of the shekel would constitute a significant reason supporting a rate cut at the moment," said Natan.

While the Bank of Israel Sunday reiterated its forecast for gross domestic product to expand this year by 3.8%, it said the mix of factors responsible for the growth had changed. A decline in forecasted world trade growth caused central bank economists to cut their estimate for Israel's exports growth to 2.1% this year.

However, other factors, such as imports of consumer goods, the Purchasing Managers Index and the Consumer Confidence Index, indicated that growth during the first quarter was higher than the Bank of Israel forecast in December.

It should be noted that one percentage point of this year's growth is due to the start of natural gas production at the Tamar field off Israel's Mediterranean coast during the spring. The Bank of Israel noted that a delay in getting the gas flowing could lower growth but would have little effect on employment.

Israel's jobless rate rose to 6.7% of the labor force in February, up from 6.5% the month but down slightly from December's 6.8% rate, the CBS said.

The percentage of the labor force working or seeking work rose to 64.2%, from 63.5%, in January.

The increase in unemployment was due to higher unemployment for men, which rose 0.2 percentage points, to 6.8%, in February. For women it was unchanged, remaining at 6.5%.

Likewise, the proportion of men in the labor force declined while for women it rose.

Meanwhile, the CBS said merchandise exports dropped at a 7.6% annual rate from December to February, with industrial exports down 6.5%. Both figures were lower than the decline in the previous three months.

Hotel stays by foreign tourists dropped at a sharp 19.8% annualized rate in the three months.

Merchandise imports dropped at a 16% rate, accelerating from a 15.5% rate in the previous three months. Imports of capital goods, a barometer of future economic growth, were down at an especially sharp 35.1% rate, the CBS said.