Wal-Mart Stores Inc. raised its December sales forecast to the high end of the previous estimate range, 1-3%, as the last week of December turned out to be better than expected. Wal-Mart stock was up 2% on the news, signalling a general rise in the retail sector as the nation’s top retailer is supposed to be a telltale indicator for the industry.

Kmart Holding Corp. also lent support to the optimistic forecasts as November-December sales showed a significantly slower decline than last year.

This time the price-cutting strategy worked well for the revenue, although analysts are still dubious about the profit margins. However, most of them expect Wal-Mart to meet its earnings per share target that falls in the range between 73 cents and 75 cents.

Wal-Mart stock rose $1.15 to $53.97 in New York yesterday.

"It’s a good sign for the broader market, which still lagged the up market but probably did better than some thought," said Frank Badillo, an economist with Retail Forward.

"We would expect a rally in retail stocks on this although as earnings come into focus we could see more pressure," said Bill Dreher, retail analyst at Deutsche Bank.

The last-minute surge in sales was helped by the shopping spree with the use of gift cards that make up 8% of the total sales this year and can be booked by retailers only after they are redeemed. The holiday period sales that account for 23% of retailers’ revenue for the year showed solid results. A drop in oil prices as well as other reassuring macroeconomic data drove consumers into stores.

Earlier analysts issued less optimistic forecasts. MasterCard Advisors, a consulting unit of MasterCard International, projected an increase in holiday consumer spending of 8.1% compared to last year, while the National Retail Federation projected a 4.5% increase. The difference in numbers is explained by the fact that MasterCard Advisors includes in this calculations both online sales and sales of gift cards, while NRF only accounts for only a part of online shopping and excludes gift cards.

Online sales were a big hit this holiday season. Amazon.com reported a one-day record of 2.8 million orders, adding enthusiasm to retailers eager to start an online store.