Anyone thinking Americans might be back to their free-spending ways got a reality check on Thursday as many mainstream retailers reported disappointing December sales.

While some store chains cited a blizzard that hit the East Coast after Christmas, investors seemed more concerned that December sales showed that consumers have still not returned to spending habits seen before the financial crisis and that they will continue to be frugal.

In particular, middle-of-the-road clothing retailers like Gap and American Eagle Outfitters , and mass-appeal department store retailers like Kohl's Corp and Macy's Inc , failed to meet Wall Street's expectations and their shares got hammered as a result.

Of the top 5 losers on the S&P 500 index <.SPX> , three were retailers, Gap, discounter Target Corp and video game retailer GameStop Corp.

The turbulence is here to stay, said David Bassuk, a managing director at consulting firm AlixPartners. The consumer is still very sensitive to even slight fluctuations in prices -- the consumer is still looking for deals.

The Standard & Poor's retail index <.RLX> fell 1.6 percent, its lowest level since early December. By contrast, the broader S&P 500 fell just 0.2 percent.

December sales at stores open at least a year for the 28 major retailers tracked by Thomson Reuters rose 3.1 percent, below Wall Street's forecast of a 3.4 percent increase.

Chains that beat forecasts included department stores J.C. Penney Co Inc and Dillard's and off-price retailer TJX Cos .

TJX unexpectedly reported a same-store sales gain and raised its outlook, sending its shares up 6 percent. But Penney noted that shoppers had spent less per transaction, citing a general need to discount that continued into the holiday shopping season. Its shares fell 1.26 percent.

WALLETS BACK IN POCKETS

Now that Christmas is over, consumers, whose spending accounts for about 70 percent of the U.S. economy, are putting their wallets away.

I want money in my bank account and my 401k back to where it used to be, said Patricia Welcoy, a legal assistant shopping on Wednesday in Manhattan and toting a T.J. Maxx bag.

Unemployment is still hovering just below 10 percent, and efforts by Americans to pay down high household debt loads are limiting their ability to shop as often as they once did.

New U.S. claims for unemployment benefits rose more than expected last week, although a decline in the four-week average to a more than two-year low indicated some improvement in the labor market.

The International Council of Shopping Centers forecast same-store sales will rise 2.5 percent to 3 percent in January and 3 percent to 3.5 percent in 2011. Chief Economist Michael Niemira said discount chains would see big gains, partly because of higher food prices.

Illustrating how the gap between the well off-and middle-and-lower income Americans has grown, some of the biggest sales gains in December were by upscale chains Saks Inc , Nordstrom Inc and Neiman Marcus .

Those that do have jobs are more confident, said Michael Koskuba, a portfolio manager at Victory Capital Management.

On the other end, Target should have been a benefactor of shopper frugality, but suffered from the same low prices for consumer electronics that hurt Best Buy in November, he said.

SNOWED IN

Some retailers blamed the weather for sales missing expectations that were ratcheted up after shoppers hit stores en masse at the start of the holiday shopping season.

We did a lot better before the snow hit, no question about it, Macy's Chief Executive Terry Lundgren told cable channel

CNBC.

December 26, which was the third-biggest shopping day of 2009, would struggle to make the top 10 this year, according to research firm ShopperTrak. The week after Christmas accounts for 15 percent of seasonal sales.

ShopperTrak said on Wednesday that retailers did not make up all of the $1 billion in retail sales it said shoppers put off because of the storm.

British retailers also said snow hurt Christmas sales.

Macy's same-store sales rose 3.9 percent, below Wall Street estimates of 4.5 percent, though in line with its own earlier guidance. Still, the company did not raise its profit forecast.

Gap shares fell 7 percent. The clothing chain reported an unexpected same-store sales drop as shopper traffic plummeted.

Wet Seal posted an unexpected decline, and American Eagle Outfitters reported an 11 percent drop and lowered its profit forecast, as teen chains had cut prices aggressively to win shoppers away from rivals. Abercrombie & Fitch's same-store sales soared 15 percent.

(Reporting by Phil Wahba; additional reporting by Dhanya Skariachan, and Helen Chernikoff in New York, Jessica Wohl in Chicago, and Nivedita Bhattacharjee and NR Sethuraman in Bangalore; Editing by Bernard Orr)

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