Tesco, the world's fourth-biggest retailer, smashed Christmas sales growth forecasts in its domestic market, boosted by its loyalty scheme and demand for premium foods and adding to signs of healthy festive spending.

The supermarket group, which makes about three quarters of its profit in its home market, said on Tuesday sales at stores open at least a year rose 4.9 percent, excluding gasoline and VAT sales tax, in the six weeks to January 9.

That was up from 2.8 percent in the third quarter of its financial year ending November 28, above the average forecast of 3 percent in a Reuters poll of 14 analysts and its best Christmas performance for three years.

The result adds to signs of solid festive spending. Earlier, a survey showed British retailers enjoyed the biggest rise in total sales in a December since 2005.

But Tesco's finance director, Laurie McIlwee, joined rivals in expressing concerns about the outlook for 2010.

"Unemployment is still high and of course we've still got all of the concerns about how a large government debt is going to be paid off," he told reporters on a conference call.

However, he said strong demand for discretionary non-food purchases like electricals and clothing -- which grew at twice the rate of food sales -- and a 16 percent jump in sales of the group's premium Finest range showed confidence was building.

Traders said Tesco shares were set to rise by up to 3.5 percent at the market open.

"Just good news," said Nomura analyst Matt Truman. "We believe 2010 will be Tesco's year."

"FRONT OF THE PACK"

Tesco, which runs over 2,300 stores in 14 countries, said group sales rose 7.5 percent at constant currencies, helped by further signs of economic recovery in both Asia and Europe.

The firm has lagged sales growth at its main rivals recently due to its greater exposure to discretionary non-food goods and to shoppers switching to its cheaper discount range.

But industry data show the gap has closed.

"We've not only converged with competitors, but we're at the front of the pack," McIlwee said.

Supermarkets rival J. Sainsbury last week posted a 4.2 percent rise in underlying sales for the 13 weeks to January 2.

Tesco said sales were lifted 0.7 percentage points by goods paid for with its Clubcard loyalty vouchers.

Its shares have lagged the DJ Stoxx European retail sector index by 9 percent in the past year. They closed at 417.85 pence on Monday, valuing the firm at 33 billion pounds.