March sales at U.S. retail chains probably dropped modestly, held back by the combination of a later Easter and higher gasoline prices.

Analysts expect department stores such as Kohl's Corp to post the biggest declines after tallying huge gains a year earlier, when consumer demand picked up steam and shoppers bought spring clothing.

March sales at stores open at least a year are likely to show a 0.7 percent fall across 25 chains tracked by Thomson Reuters. March same-store sales jumped 9 percent in 2010, when Easter was on April 4. This year the holiday lands on April 24.

Low consumer confidence and higher food and gasoline prices appear to be tempering any major recovery, even though shoppers have started to see improving economic data, including last week's reports that the unemployment rate dipped to 8.8 percent and nonfarm payrolls rose again.

There is definitely a lot going on right now in terms of the inflation that we're seeing from fuel prices, said retail strategist John Long of consulting firm Kurt Salmon. That's really just the tip of the iceberg.

On Tuesday, the International Council of Shopping Centers and Goldman Sachs said sales rose 2.8 percent in the week ended Saturday. The ICSC said it expected same-store sales to be flat to up 2 percent for March.

The Standard & Poor's retail index <.RLX> was up 1.5 percent on Tuesday and has risen 2.7 percent since February sales were reported on March 3. The S&P 500 <.SPX> is up 0.4 percent over the same period.

The average price of regular gasoline is now around $3.66 per gallon, up from less than $2.83 a year ago, according to AAA. Much of the spike has come during 2011 amid unrest in the Middle East and Northern Africa.

It typically takes anywhere from four to six months of sustained price changes to get consumers to behave differently, Long said, so higher gas prices are not yet a huge concern.

Shoppers will also soon face more expensive clothing, as retailers raise prices due to increased cotton and transportation costs. Those prices, combined with gasoline and food inflation, may curb spending later in the year, especially around back-to-school and winter holiday periods.

A decline in March same-store sales would be the first drop since August 2009.

DECLINES EXPECTED

On Tuesday, drugstore operator Walgreen Co , one of the largest retailers that still reports monthly same-store sales, said they rose 3 percent, beating analysts' expectations of a 1.8 percent increase.

General merchandise sales rose 1.6 percent, while analysts had forecast a 1.3 percent drop.

Walgreen shares rose 0.5 percent.

Target Corp and Macy's Inc are among the retailers that already said their same-store sales were likely to fall in March and rise in April.

Department stores are expected to report a decline of 3.4 percent.

One chain that should buck the trend is Costco Wholesale Corp , which analysts expect to post the biggest gain of 7.4 percent. The warehouse club operator had an additional sales day in its March period and gets a lift from selling gas at some locations.

The later Easter, and therefore many later school spring breaks, may trim clothing retailers' same-store sales by 3 to 4 percentage points in March and lift them by 4 to 5 percentage points in April, according to Goldman Sachs.

Chains catering to college students may have done better than those aimed at a younger set as college spring breaks generally fall in March.

Of those that report monthly, we believe Victoria's Secret is best positioned given its Pink and swim collections, Nomura analyst Paul Lejuez said in a note. Limited Brands Inc , which owns Victoria's Secret, is Lejuez's top pick.

Retailers with fresh merchandise may also thrive.

I've certainly heard anecdotally that retailers have done surprisingly well in March with new spring goods, said Long.

Chains rang up a 4.2 percent increase in February same-store sales.

(Reporting by Jessica Wohl; Editing by Richard Chang and Lisa Von Ahn)

Easter