U.S. retail sales (search) surged 1.8 percent last month as buyer incentives led to the biggest gain in auto sales since just after the Sept. 11, 2001, attacks, when carmakers flying the flag put in place zero percent financing deals, a government report showed on Thursday.

July's retail-sales jump followed a similarly healthy 1.7 percent rise in June, the Commerce Department (search) said. However, the increase fell short of Wall Street forecasts for a 2.2 percent gain.

Auto sales (search) shot up 6.7 percent, their sharpest rise since October 2001, as Ford (F) and DaimlerChrysler joined General Motors (GM) in extending employee discounts to all consumers. The unusual sales incentives led the department to alter the way in which it usually smooths the data for seasonal factors.

Excluding autos, retail sales rose a modest 0.3 percent last month - below forecasts for a 0.6 percent gain.

The non-autos increase reflected a rise in gasoline prices that gave a boost to gas station sales, which rose 2.4 percent. Excluding both autos and gasoline, retail sales would have been unchanged in July, the department said.

The report showed a sharp 1.3 percent drop in furniture sales after a 2.2 percent jump in June. Building material sales slipped 0.4 percent.