US retailers reported their strongest holiday sales since 1999, boosted by a late surge, but upmarket groups had a merrier Christmas than the mass-market merchants.

Some of the stronger sales performances among a highly diverse set of December retail figures yesterday also appeared to come at the expense of margins.

Wal-Mart, the world's biggest retailer, surprised investors by announcing a 4.3 per cent gain in same-store sales - from stores open at least a year - after warning during December that the increase was running towards the bottom of its 3-5 per cent forecast.

But the discount superstore group warned that fourth-quarter earnings might be at the low end of its 63-65 cents a share guidance. Analysts were forecasting 64 cents.

There were also some big disappointments. Gap missed analysts' sales forecasts by a wide margin and its shares plunged nearly 13 per cent. Shares in Kohl's, the low-price department store operator, fell 7 per cent as it cut earnings forecasts after lower December sales.

Mr Michael Niemira, chief economist at the International Council of Shopping Centers, which compiles figures from 80 retail chains, said December same-store sales were up 4.2 per cent overall, in line with his 4-4.5 per cent forecast.

Combined November and December sales were up 4 per cent, year on year - the biggest increase since that of 5.4 per cent in 1999, and well ahead of gains of 0.5 per cent in 2002, 2.2 in 2001 and 2.4 in 2000.

"It's a sigh of relief," he said. "But we are in a transitional retail market. You have really started to see a pick-up in upper income household spending, but the middle income spending pick-up has been uneven."

Fears about a weak jobs market dampened middle-income shoppers' spending, while two weekends of snow in the eastern US also hit sales.

However, a late rush helped many retailers hit their monthly targets. - (Financial Times Service)