By  on December 28, 2005

NEW YORK - U.S. stocks ended Tuesday's trading sessions lower over fears of a recession looming on the horizon, but retail shares essentially held their own.

The Dow Jones industrial average lost 106 points and closed at 10,778, while the Nasdaq lost 23 points to close at 2,227.

Investors on Tuesday were concerned about an economic slowdown as the bond market indicated the yield curve inverted for the first time in five years. The inversion meant that short-term interest rates are higher than long-term ones. In the past, a similar move in the yield curve has preceded an economic slowdown.

Yet fears of a recession didn't seem to impact retail shares, even though most retailers are aggressively promoting sales to clear out inventory so spring merchandise can be moved onto the selling floors.

"The post-Christmas rush remains important to holiday sales results, as last year it accounted for approximately 10 percent of sales and we expect it to be bigger this year with the continued growth of gift cards," observed Merrill Lynch retail analyst Mark Friedman in a research note Tuesday. "Schools are now closed, people are on vacation and returns are being done. This means store credits or cash to burn. This is well timed for clearance sales."

The specialty retail analyst wrote in his research note that gift cards remain significant to the holiday season, as they have become popular gifting items.

"With post-holiday markdowns being taken across numerous retailers, we anticipate a large portion of gift card holders will utilize their cards this week to take advantage of the sales," he concluded.

Shares of some specialty stores gained ground in Tuesday's trading session. Abercrombie & Fitch, which offered few markdowns during the holiday selling season, rose 64 cents to close at $65.62 in Big Board trading. Shares of American Eagle Outfitters, its competitor in the mall, lost just 2 cents to close at $22 in Nasdaq trading.

Shares of teen retailers were mixed, as evidenced by Pacific Sunwear, which rose 3 cents to close at $25.28, while Urban Outfitters closed at $25.87, down 17 cents. Both PacSun and Urban trade over the counter.

However, teen retailer Zumiez Inc., which went public earlier this year, gained $1.01 to close at $42.34 in over-the-counter trading.

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