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While some store chains cited a blizzard that hit the East Coast after Christmas, investors seemed more concerned that December sales showed that consumers have still not returned to spending habits seen before the financial crisis and that they will continue to be frugal.

In particular, middle-of-the-road clothing retailers like Gap and American Eagle Outfitters, and mass-appeal department store retailers like Kohl's Corp and Macy's Inc, failed to meet Wall Street's expectations and their shares got hammered as a result.

Of the top 5 losers on the S&P 500 index , three were retailers, Gap, discounter Target Corp and video game retailer GameStop Corp.

"The turbulence is here to stay," said David Bassuk, a managing director at consulting firm AlixPartners. "The consumer is still very sensitive to even slight fluctuations in prices -- the consumer is still looking for deals."

The Standard & Poor's retail index fell 1.6 percent, its lowest level since early December. By contrast, the broader S&P 500 fell just 0.2 percent.

December sales at stores open at least a year for the 28 major retailers tracked by Thomson Reuters rose 3.1 percent, below Wall Street's forecast of a 3.4 percent increase.

Chains that beat forecasts included department stores J.C. Penney Co Inc and Dillard's and off-price retailer TJX Cos.

TJX unexpectedly reported a same-store sales gain and raised its outlook, sending its shares up 6 percent. But Penney noted that shoppers had spent less per transaction, citing a general need to discount that continued into the holiday shopping season. Its shares fell 1.26 percent.

WALLETS BACK IN POCKETS

Now that Christmas is over, consumers, whose spending accounts for about 70 percent of the U.S. economy, are putting their wallets away.

"I want money in my bank account and my 401k back to where it used to be," said Patricia Welcoy, a legal assistant shopping on Wednesday in Manhattan and toting a T.J. Maxx bag.

Unemployment is still hovering just below 10 percent, and efforts by Americans to pay down high household debt loads are limiting their ability to shop as often as they once did.

New U.S. claims for unemployment benefits rose more than expected last week, although a decline in the four-week average to a more than two-year low indicated some improvement in the labor market.

The International Council of Shopping Centers forecast same-store sales will rise 2.5 percent to 3 percent in January and 3 percent to 3.5 percent in 2011. Chief Economist Michael Niemira said discount chains would see big gains, partly because of higher food prices.