BRUSSELS (Reuters) - Euro zone retail sales fell further than expected in May, data showed on Friday 3 July, dampening hopes that an improvement in consumer spending might ease the recession.

Retail sales in the 16-country currency area fell 0.4 percent month-on-month, the European Union statistics office said, worse than the 0.1 percent drop expected by economists in a Reuters poll.

Sales fell 3.3 percent year-on-year, while analysts had expected a 2.7 percent decrease.

The data, which came a day after the European Central Bank kept euro zone interest rates steady at 1.0 percent, showed consumer demand continued to suffer from the worst recession since World War Two.

Eurostat revised down its retail trade figures for April to a rise of 0.1 percent month-on-month and a fall of 2.5 percent annually from the previous readings of plus 0.2 percent and minus 2.3 percent, further illustrating recent cautious outlooks given by some of Europe's top retailers.

Sales of non-food products in May dropped 0.6 percent month-on-month and 3.4 percent year-on-year despite good weather, which normally boosts consumer spending.

Retail sales are an indication of household demand, under pressure from rising unemployment due to factory closures and lay-offs. Joblessness in the euro zone rose in May to 9.5 percent, its highest in 10 years.

Eurostat said food, drink and tobacco sales increased 0.2 percent on the month, but fell 1.7 percent from a year earlier.

(By Darren Ennis. Editing by Dale Hudson)