To fix this issue find the file :
app/design/frontend/base/default/template/checkout/cart.phtml
If you have a theme installed, you should look here first:
app/design/frontend/default/YOUR THEME NAME/template/checkout/cart.phtml
Now that you have the file you need, look for this code that starts the loop for every item in the cart(line 109 on my version):
<?php foreach($this->getItems() as $_item): ?>
Below that input the following code that will change the path of the continue shopping button by setting the product url to the category url inside the loop:
<?php
$_categories = $_item->getProduct()->getCategoryIds();
$_category = Mage::getModel(‘catalog/category’)->load($_categories[0]);
$url = $this->getUrl($_category->getUrlPath());
Mage::getSingleton(‘checkout/session’)->setContinueShoppingUrl($url);
?>
If you have multiple products it will always set the url to the last product.
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Found you website looking to solve exactly the same issue. Thank you for this guide, I am sure a lot of other people would want to change that button too.