The retail stock roller coaster hit another downward slope Tuesday with the sector falling 2 percent amid widespread selling in equities.

This story first appeared in the June 23, 2010 issue of WWD. Subscribe Today.

The S&P Retail Index lost 8.60 points to close at 415.82, well off its high for the year of 499.91.

Retailers hit that peak on April 26 as spring sales showed a strong rebound and the U.S. economy seemed to be fighting its way back. But the enthusiasm for retail stocks, which historically lead the economy out of recession, waned as the recovery seemed to falter and the debt crisis in Europe threatened global financial stability.

Stocks have remained particularly unsteady as investors grasp for clear signs on consumer spending and for a general sense of stability in markets. Since hitting their high nearly two months ago, retail stocks have seen 13 trading sessions that ended in swings of better than 2 percent — as many as the sector saw in the prior nine-and-a-half months.

All the commotion can make it harder for companies looking to raise money by issuing new shares or to use their stock to help fund a takeover of a competitor.

In part, retailers got caught in the downdraft Tuesday.

The Dow Jones Industrial Average fell 1.4 percent, or 148.89 points, to 10,293.52 as the energy sector tanked on uncertainty surrounding the six-month moratorium on new deepwater oil and gas drilling that was overturned by the courts, but is expected to be appealed.

International investors were also feeling dour.

The FTSE 100 slipped 1 percent to 5,246.98 in London as British officials laid out a tough new budget for the country. However, retailers there gained ground on news that an increase to the country’s value-added tax, or VAT, intended to help ease the budget deficit, would not come until Jan. 4, 2011, and would push the levy to 20 percent from 17.5 percent.

The new rate is expected to raise 13.5 billion pounds, or $20.03 billion at current exchange, annually by the 2014-15 fiscal year. VAT is charged on goods and services in the U.K., with exemptions such as children’s clothes, books, newspapers and most food items. While foreign tourists can claim a refund on VAT, they have to spend about 75 pounds, or $111, in each shop to qualify.

“It will hit jobs, consumer spending, the pace of recovery and add to inflation, but we accept the government has no choice or easy options,” said Stephen Robertson, director general of the British Retail Consortium. However, Caroline Gulliver, an analyst at investment bank Execution Noble, said the January start date means “retailers have a chance to plan their buying and cost control accordingly.” She also noted that a reduction in the main rate of corporation tax — a tax on the profits made by companies, to 24 percent from 28 percent — over the course of four years, starting in April, “is a benefit for all retailers.”

Shares of Asos increased 3.6 percent to 830 pence, or $12.31 at current exchange, and Marks & Spencer advanced 1.7 percent to 348.40 pence, or $5.17.

Elsewhere in Europe, the CAC 40 slipped 0.8 percent to 3,705.32 in Paris and the DAX fell 0.4 percent to 6,269.04 in Frankfurt.

Asian investors pushed the Nikkei 225 down 1.2 percent to 10,112.89 in Tokyo and the Hang Seng Index ebbed 0.5 percent to 20,819.08 in Hong Kong.

• Zale-Citi Extension:
Zale Corp. said in a regulatory filing with the Securities and Exchange Commission that it had paid Citibank $5.4 million due to the bank for a shortfall in credit sales, but the credit agreement between the two parties would be terminated in December unless Zale pays another $1.1 million on or before July 16. If payment is made by the deadline, the current credit agreement would remain in force until the original March expiration date. Negotiations to replace the original agreement have continued beyond the first deadline of June 16, but on a nonexclusive basis. Shares of Zale Tuesday fell 21 cents, or 9.2 percent, to close trading at $2.08.

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