U.S. retailers posted better-than-expected December sales, and many raised profit forecasts as they benefited from a late holiday shopping surge and discounts that were more modest than a year ago.

Retailers from Macy's Inc and Nordstrom Inc to Aeropostale Inc and Limited Brands Inc raised their earnings outlooks. Shares tracked by the Standard & Poor's Retail Index <.RLX> rose 0.7 percent while the broader market fell.

Based on reports of 30 retailers tracked by Thomson Reuters Data, 71 percent posted better-than-expected sales results for stores open at least a year in December, the most important month in the calendar for the sector.

Retailers overall posted a 2.9 percent increase, exceeding the 2 percent rise analysts were expecting and marking the best performance since a 3.4 percent gain in April 2008, according to Thomson Reuters Data.

Investors were eagerly awaiting the latest data to help gauge the strength of consumer spending, which accounts for about two-thirds of U.S. economic activity, heading into 2010.

Retail watchers said the December performance showed consumers warmed up for the holidays, but cautioned that a full recovery requires a better job market.

We have figured out that we can survive and maybe we can spend a little bit more than we did when we panicked, said Patricia Edwards, founder of wealth management firm Storehouse Partners. But Mr. and Mrs. Middle America have debts to pay off and jobs to find.

U.S. jobless claims rose less than expected last week, suggesting a better tone to the overall labor market. But economists still see unemployment rising to 10.1 percent in December from 10 percent in November.

The International Council of Shopping Centers noted that same-store sales for all of 2009 were the worst on record, down 2 percent. It forecast sales would be flat to up 1 percent in January and only pick up steam later in 2010 for a full-year rise of 3 percent to 3.5 percent.

MANAGING MARGINS

Since December 2008, store chains have tightly managed their inventories, becoming less vulnerable to markdowns and protecting their profit margins.

Macy's posted a 1 percent rise in same-store sales, slightly better than analysts' estimates, and raised its quarterly earnings view. Shares of the department store operator rose 2 percent.

TJX Cos Inc and Zumiez Inc were also among companies that raised quarterly earnings outlooks. The moves suggested promotions were relatively tame compared to last year and that retailers were able to hold onto margins, said Retail Metrics President Ken Perkins.

But he sees little impetus for increased consumer spending in the coming months, at least until employment picks up.

It's all about the jobs, he said, adding that sales would have to return to at least 2007 levels for him to call it a turnaround. We would like to see some mid-single-digit comp growth from these guys on a consistent basis.

IMPROVEMENTS SEEN FOR MOST SECTORS

By sector, the strongest performance came from discount chains, which clocked a 3.9 percent increase in December sales, according to Thomson Reuters Data.

Costco , the largest U.S. warehouse club operator, posted a 9 percent rise, exceeding analysts' expectations of 7.9 percent growth.

Sears Holdings reported a 0.4 percent increase in December same-store sales and forecast quarterly earnings well above expectations. Its shares surged more than 13 percent.

Target Corp posted a surprise 1.8 percent rise, helped by stronger-than-expected traffic. Analysts had forecast a decline of 0.2 percent.

Beyond discounters, the strongest growth came from apparel chains that cater to both adults and teenagers.

Aeropostale said same-store sales in December rose 10.1 percent, blowing past expectations for a gain of 3.1 percent, and raised its outlook for the current quarter.

The company said its merchandise margins for the month had increased significantly over last year and inventories remained under control. It believes it is well positioned for the spring selling season.

Retailers that fell short of expectations included Hot Topic Inc , which reported a deeper-than-expected 10.9 percent decline and lowered its quarterly earnings outlook as a result.

Abercrombie & Fitch said its same-store sales fell 19 percent, compared with Wall Street's forecast for a 12.5 percent drop, and its shares fell 7.2 percent.

Limited reported a deeper-than-expected 2 percent decline, but raised its quarterly earnings-per-share outlook. The company said its sales and merchandise margins were above expectations.

(Additional reporting by Brad Dorfman, Jessica Wohl and Ben Klayman in Chicago; Nicole Maestri in San Francisco and Dhanya Skariachan in New York; Editing by Michele Gershberg and Lisa Von Ahn)

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