Wal-Mart enjoyed better than expected sales growth

The 11% decline in sales at stores open for at least a year, compared to a 25% drop recorded the previous month.

Same-store sales at Gap stores were down 9%, while Old Navy outlets saw a 14% drop. Banana Republic recorded the smallest decline with only a 3% fall.

The better than expected figures led Gap to raise its earnings forecast for the fourth quarter.

It now says its loss, excluding charges, will be no worse than the previous quarter's deficit of six cents a share, whereas before it said the loss would be bigger.

Mixed fortunes for discounters

The world's largest retailer Wal-Mart enjoyed strong sales growth over the important Christmas period, with same-store sales up a better than expected 8% during December.

The company said it was not increasing its earnings forecast, as fierce competition was keeping pressure off profit margins.

It also said that while sales had risen, it was seeing customers buying lower-priced items.

But while Wal-Mart enjoyed good festive sales, its discount rival Kmart said it saw sales drop 1% in December at stores which have been open at least a year.

Kmart also announced that its earnings for the current fiscal year were likely to fall short of expectations, and said it was in talks with its lenders about raising extra money.

The news took analysts by surprise and Kmart's shares closed down 60 cents at $4.20.

"The surprise is that they are looking for supplemental financing in addition to discussing their existing financing," said Prudential Securities analyst Wayne Hood.