Retail stocks shot up 6.4 percent Monday, their second-biggest gain for the year, as the broader market rallied on government plans to unclog the financial system by establishing a public-private partnership that could eventually buy up $1 trillion in real estate debt.

This story first appeared in the March 24, 2009 issue of WWD. Subscribe Today.

Concerns over what the Treasury Department would do about the questionable debt had vexed markets and bank stocks for months, but the plan only tangentially touches retailers and consumers who are still waiting for economic relief of their own. Still, stability in the banking sector would be good news for the economy overall.

The S&P Retail Index gained 17.4 points to 288.57 as the Dow Jones Industrial Average advanced 6.8 percent, or 497.48 points, to 7,775.86. Retail stocks have now risen 3.3 percent this year, outpacing the Dow’s 11.4 percent decline.

But there are still deals to be had.

“These stocks have clearly been oversold,” said Thomas Filandro, senior retail analyst at Susquehanna Financial Group. “No one wants to touch the sector. A lot of these stocks are very inexpensive.”

The economic stimulus money beginning to spread out from Washington and the need to replenish threadbare or ill-fitting wardrobes will eventually send shoppers back into stores, Filandro said. And a rebound in consumer spending could have an outsize impact on companies that have been cutting back and learning to live on less.

“The sector has been rightsizing inventories, rightsizing cost structure and scaling back dramatically on their capital spending,” Filandro said. “The leverage in the retail model is substantial.”

For now, sales signs are still a common sight on the retail landscape.

Margaret Whitfield, equity analyst at Sterne Agee & Leach Inc., downgraded Urban Outfitters Inc.’s stock to Neutral from Buy, partially over concerns over markdowns at Anthropologie. The stock rose 1.9 percent to $17.72 Monday.

“Sale fixtures have been recently set up in the front of the store, with markdown items priced at $29, $39 or $49 — or off about 50 percent,” the analyst said of Anthropologie. Whitfield also said the Free People business could be impacted by credit troubles among its specialty store clients, which make up 40 percent of wholesale sales.

And Tiffany & Co.’s fourth-quarter profits fell by 75 percent but beat estimates on an adjusted basis, and the firm’s shares shot up 15.5 percent to $23.37.

Other gainers in the specialty sector included American Apparel Inc., up 15.1 percent to $3.56; Chico’s FAS Inc., 12.9 percent to $5.16; AnnTaylor Stores Corp., 12.7 percent to $4.62; The Men’s Wearhouse Inc., 10.6 percent to $15.66, and J. Crew, 10 percent to $13.50.

Broadline retailers were also riding the rally with gains from Dillard’s Inc., ahead 18.2 percent to $5.97; Saks Inc., 16.1 percent to $1.80; Macy’s Inc., 10.8 percent to $8.86; Nordstrom Inc., 10.1 percent to $15.83, and Target Corp., 9 percent to $33.08.

And even though Sears Holdings Corp. had its corporate family credit rating cut to “Ba2” from “Ba1” by Moody’s Investors Service, shares of the firm rose 6.9 percent to $42.88. Moody’s said Sears had a “formidable position in hard lines,” but continuing weakness in the apparel business outside of the Lands’ End brand. The outlook on the rating is stable.

Shares of vendors also got some relief with increases from G-III Apparel Group Ltd., up 16.5 percent to $5.64; Jones Apparel Group Inc., 11 percent to $4.53; The Warnaco Group Inc., 8.9 percent to $22.75; Kenneth Cole Productions Inc., 8.7 percent to $7.25, and Liz Claiborne Inc., 7.1 percent to $2.10.