By and  on October 21, 2010

Stocks reversed course Wednesday, pushing the Dow Jones Industrial Average back above 11,000 as retail shares gained — but not as strongly as the overall market. The Federal Reserve’s Beige Book report hinted at modest economic improvement in the U.S. and investors shook off fears that higher interest rates would stifle the Chinese economy.

The Dow increased 1.2 percent, or 129.35 points, to 11,107.97, after a 165-point drop Tuesday when the People’s Bank of China raised its benchmark interest rate by 25 basis points to 2.5 percent. Higher interest rates keep prices down but also restrain growth, and China’s continued strong expansion is seen as key to the global economic recovery.

The S&P Retail Index rose 0.9 percent, or 3.92 points, to 460.84, having slipped 1.7 percent Tuesday. Among the gainers were J.C. Penney Co. Inc., up 0.7 percent to $32.96, and Target Corp., ahead 1.3 percent to $54.18.

Christopher & Banks Corp. bucked the trend, falling 13.9 percent to $5.83 after news that Lorna Nagler’s more-than-three-year turn as president and chief executive officer came to an end Tuesday. Chairman Larry Barenbaum will be interim ceo while the company seeks a permanent successor.

The challenges for retailers are expected to continue heading into the holiday season. Shoppers remained price sensitive in most regions of the U.S. in September and early October, as discount-driven consumer spending stayed steady or ticked up slightly, according to the Beige Book released on Wednesday.

The report, which provides a snapshot of economic activity based on anecdotal evidence from the Fed’s 12 districts, found retail spending was “flat to moderately positive,” in most regions. Minneapolis, San Francisco, Kansas City, Philadelphia and Dallas all reported slight to better-than-expected consumer spending growth. Cleveland, Chicago and St. Louis all said retail spending was flat. Richmond and Atlanta reported declining traffic and sales.

One retail chain contact in New York said sales of seasonal apparel were “sluggish due to unseasonably mild weather,” but other merchandise was selling fairly well. Some New York retailers also said they were concerned about the recent reinstatement of the state sales tax on clothing costing less than $110, although it was too early to gauge the impact.

Philadelphia retailers said back-to-school sales were stronger this year compared with 2009, with many executives reporting that discretionary spending appeared to be increasing. Dallas retailers said b-t-s spending led to higher sales, but consumers remained “extremely” price sensitive.

A retail contact in Cleveland said consumers preferred private label to premium brands. Merchants in Chicago said promotions and discounts continued to be the “primary driver of traffic in stores.” A major Minneapolis-based merchant said same-store sales in September were up about 1 percent from a year earlier, while a North Dakota mall reported traffic up 10 percent in September from the previous year.

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