WASHINGTON: US retailers are bracing for a grim Christmas shopping season as Americans rein in their spending and try to weather the storm in the financial markets and a suffocating credit squeeze.

Government data released Wednesday showed US retail sales slumped 1.2 per cent in September, their steepest decline since August 2005.

"This is just the beginning - the worst is yet to come," Howard Davidowitz, national director of retail consultancy Davidovitz and Associates, told AFP.

To try to boost sales, large retail chains are aggressively cutting prices, offering free shipping and launching the Christmas shopping season earlier than usual.

Retail titan Wal-Mart has cut the price of popular toys and offered to ship them for free throughout the Christmas season, which it launched earlier this month.

At Home Depot, the second biggest do-it-yourself chain in the United States, artificial Christmas trees and decorations have already pushed Halloween merchandise off the shelves - before the October 31st holiday had even happened.

Chicago upscale stationer Chandra Greer kicked off the Christmas season in her shop with a sale.

"Not only have we never had a sale during the Christmas season, but we've never had a sale at all," she said.

Financial audit and consultancy group Deloitte predicts that holiday sales will increase by a modest 2.5 to 3.0 per cent on a 12-month basis between November and January.

This would be less than last year's 3.4 per cent increase and one of the smallest gains since 1991, when they rose a mere 2.0 per cent.

Deloitte pinned the predicted sluggish Christmas sales on the "many economic factors weighing heavily on consumers' minds and wallets."

As well as the credit and stock market woes, consumers face high fuel and food prices which have eroded domestic budgets.

Household-name shops like home furnishings outlet Linen and Things and restaurant chains like Bennigan's have gone belly-up as the United States struggles to weather the worst financial maelstrom since the Great Depression.

"Look at who's doing well: McDonald's, Burger King, discount shops like Dollar Tree, Family Dollar, Costco, Walmart... If you sell cheap food or something that the consumer has to have to survive, you're fine," Davidovitz said.

Despite recent falls in energy prices, which have put some cash back into Americans' budgets, consumer confidence declined sharply from 69 points in September to 37 this month, according to the RBC CASH Index, a monthly national survey of consumer attitudes.

The decline was the biggest since RBC began mapping US consumer attitudes in January 2002.

Even online auction giant eBay, a source of bargains for some shoppers, warned Wednesday that the end of the year would be challenging.

"We expect a very challenging fourth-quarter holiday season for consumers who will be cautious with their spending," chief executive John Donahoe said.

"In the past month, Americans have been confronted by a worsening global credit crisis, a plummeting stock market, rising unemployment and continued housing price declines," said T. J. Marta, an analyst for RBC Capital Markets.

"We may be entering a period of manic-depression for consumers, with mood swings dictated by the latest good or bad news," Marta said.

Davidovitz agreed that the future did not look cheery for American consumers.

"They are falling dramatically behind with credit card payments and on their student loans. Banks are cutting credit ... the US consumer has debts through the roof," he said.

"The Christmas season is going to be the worst in memory," he added.

- AFP/yb