By  on September 14, 2009

Retail stocks snapped a five-session winning streak Friday, falling 0.8 percent and tempering overall gains during a week shortened by the Labor Day holiday.

The S&P Retail Index backed off its high for the year of 375.82, set Thursday, and ended the week with a 1.7 percent increase at 372.37. The sector matched the pace of the Dow Jones Industrial Average, which also rose 1.7 percent, to 9,605.41, for the week.

Investors were buttressed by fewer initial claims for unemployment insurance and a report from the Federal Reserve that consumer spending was stabilizing, though still soft.

Economists expect August retail sales, apart from auto sales, to inch up 0.4 percent after a 0.6 decrease the preceding month and an 0.3 percent price rise for goods and services after a flat showing in July.

But the holiday season, which is more important to retail profitability than ever, will be the true test of the rally that has pushed up retail shares 66.8 percent since early March.

Moody’s Investors Service, in a report Friday by debt analyst Margaret Taylor and her colleagues, said department stores have cut inventories to prepare for a weaker holiday, but shoppers’ appetites remain a wild card.

“There is a high risk that the American consumer will have a ‘discount staring contest’ with the department stores by delaying purchases until they see a level of discounts that they believe offers them value,” Taylor wrote.

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