Talk in Washington of economic stimulus helped boost retail stocks this week, but those stocks could turn south if consumers do not spend the money they get.

President George W. Bush on Friday called for a package of tax cuts and other measures totaling 1 percent of gross domestic product -- roughly $140 billion -- to help shore up a U.S. economy battered by a deteriorating housing market, a credit crisis and surging oil prices.

We've already seen a positive impact from the speculation that we might get some stimulus package passed, said Janna Sampson, co-chief investment officer at OakBrook Investments, which manages about $1.125 billion in assets, including Home Depot Inc and Wal-Mart Stores Inc.

The measures being considered by lawmakers include tax rebates, incentives for businesses and extending unemployment benefits, but specific details have not been hashed out yet.

Expectations a stimulus was on the way helped send the Standard & Poor's Retail index .RLX up almost 2 percent this week, outperforming the broader Standard & Poor's 500 .SPX, which is down almost 6 percent.

The retailers that have been the most beaten up during the past year as consumer confidence faded are up even more. Home Depot, for example, is up more than 6 percent, as is department store operator Macy's Inc.

But those gains could be reversed if the Congress and the White House cannot agree on the kind of stimulus to enact in an election year.

And investors on the sidelines likely missed the initial bump in shares this week.

You have missed the speculation pop, most definitely. Sampson said. Now, if it doesn't get enacted, there's risk.

The measure that could have the most immediate impact is a tax rebate because a rebate immediately puts cash in the hands of consumers, analysts said.

Rebates could help boost retail sales, especially at lower- priced outlets such as Wal-Mart and dollar stores, whose customers are more likely to be living paycheck-to-paycheck and who need the extra cash.

If it is targeted to lower income and middle income households, it is spent, said Asha Bangalore, an economist at Northern Trust.

In fact, in 2001 some retailers, including Wal-Mart, let customers cash rebate checks in stores in the hope they would spend the money there and then.

But the percentage of a rebate consumers actually do spend is a question. The Congressional Budget Office -- the nonpartisan budget analysis agency for Congress -- this month cited a report showing that households spent between 20 percent and 40 percent of the tax rebates of 2001 in the quarter they were received, and about two-thirds cumulatively by the end of the next quarter.

But Carl Steidtmann, chief economist at consulting firm Deloitte, has argued the current trouble in the economy has little to do with consumer incomes and more to do with falling home values and consumer bank debt.

It's a balance sheet problem, it's not an income statement problem, he said. Ultimately, you've got to have the prices of housing come down to basically stimulate the market again.

Federal Reserve rate cuts could help spur home sales if they translate into lower mortgage rates for buyers, he added.

But the effect of rate cuts takes time to filter into the economy -- six months or longer, economists said.

The way (Fed) monetary policy works, the decision is made quick, but the impact on the economy has a longer lag, Bangalore said.

In the meantime, a rebate could help bridge the gap until lower rates stimulate the economy.

I think the idea behind this would be to provide a short, quick, pop to kind of tide us over, Sampson said.

Once you know the actual (details of the stimulus package) and it passes, then you may see some outperformance by those stocks that would stand to benefit the most, she added, citing retailers such as Home Depot and Macy's that were hit the hardest when retail spending slowed.

If that is the case, retailer shares -- and not just those of low-priced retailers -- could continue to rise.

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