By Roushni Nair

(Reuters) -Australia's Woolworths posted better-than-expected third-quarter sales, as price cuts boosted volumes in its core grocery business amid cost-of-living pressures, sending shares of the nation's biggest supermarket chain to a nine-week high.

Thursday's results from Woolworths, which sells more than one-third of Australian groceries, demonstrate resilience in a challenging retail landscape where cooling inflation has limited pricing power while shoppers increasingly hunt for bargains.

Shares rose as much as 2.1% to a nine-week high of A$32.2, outperforming a 0.2% decline in the benchmark S&P ASX 200 index.

"While the market remains competitive and consumer outlook uncertain, we are making progress in these areas and will provide a more detailed update at our full year results in August," Woolworths Group ( WOLWF ) CEO Amanda Bardwell said in a statement.

The retailer reported total group sales of A$17.31 billion ($11.09 billion) for the quarter ended March 31, exceeding analysts' expectations of A$16.64 billion and 3.2% higher than the A$16.77 billion reported a year ago.

Sales in Australian Food, the company's profit engine, climbed 3.6% to A$13.05 billion, bolstered by e-commerce growth and price cuts. This marks a recovery following second-quarter disruptions when a 17-day strike at distribution centers left shelves bare and drove shoppers to competitors.

Average prices in Food Retail operations, excluding tobacco, fell 0.5% from a year earlier, marking a fifth consecutive quarterly decline, as the supermarket giant continues to cut prices in a move to retain budget-conscious shoppers.

The performance mirrors that of smaller rival Coles, which on Wednesday reported a 3.4% rise in quarterly sales as Australian grocery shoppers broadly gravitated toward more affordable options.

Woolworths' e-commerce quarterly sales increased 15.7% year-on-year to A$2.2 billion, though analysts at Citi noted the online growth was flat compared to the previous quarter, suggesting "some online share loss to Coles," which has seen acceleration driven by its Ocado automated fulfilment centres.

Separately, severe rainfall in Queensland and Northern New South Wales during the quarter resulted in an estimated A$20 million to A$25 million in additional costs from increased stock losses, higher transportation expenses and damage to its Hervey Bay supermarket, the company said.

($1 = 1.5608 Australian dollars)