By  on June 3, 2009

Retail stocks extended gains from Monday’s rally and rose 1.5 percent Tuesday.

The S&P Retail Index advanced 5.19 points to 343.67, marking a two-day surge of 7.8 percent. Retail stocks shot up Monday as hints of optimism in May economic reports — including a slower decline for U.S. manufacturing and more job postings online — outshined the historic bankruptcy of General Motors Corp.

Shares of Sears Holdings Corp. climbed 8.9 percent to $67.35 Tuesday after GE Capital extended the company $400 million as part of a $4 billion asset-based credit facility. Also gaining ground were The Talbots Inc., up 19.7 percent to $4.19; Coldwater Creek Inc., 9.3 percent to $4.69; Macy’s Inc., 3.2 percent to $13.87, and J.C. Penney Co. Inc., 3 percent to $30.87.

The past few months have been a time of redemption for retail stocks. The sector is up 17 percent since the end of the first quarter on March 31.

Liquidity continues to be a major, if not all-encompassing, concern, however.

Debt watchdog Fitch Ratings said retailers’ credit ratings still faced more risk of downgrades than chance of upgrades. “Negative rating movement is more likely for retailers selling discretionary products, such as department stores and specialty retailers, due to the expectation that sales and financial metrics will remain under pressure,” Fitch said in an analysis this week.

Credit facilities are an important source of liquidity for retailers, but banks are exacting a higher toll for their exposure. Sears, Macy’s and J.C. Penney have all renewed or amended their credit arrangements in recent months, and the rest of retailing will have to go through the process sooner or later.

“While the ability to get new facilities is encouraging, of concern is the increased burden new terms will have for companies,” Fitch said. “Generally, the size and the tenor of these facilities have been reduced, and terms — including pricing, covenants and security — have become more onerous. These trends are expected to continue.”

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