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In a similar example of divergent views, some members of the Fed's policy-making Federal Open Market Committee thought the central bank should cut short its $600 billion bond buying program if growth proved more robust or inflation higher. However, several others saw no need to make adjustments, according to minutes of the Fed's March 15 meeting, which were released on Tuesday.

The minutes showed officials increasingly concerned about inflation and the possibility an inflationary psychology might take root.

However, they concluded for the most part that higher inflation due to energy and commodity price spikes would be temporary, although they vowed to keep a watchful eye on whether consumers and businesses were beginning to expect higher inflation in the future.

"A significant increase in longer-term inflation expectations could contribute to excessive wage and price inflation, which would be costly to eradicate," the minutes said.

Staff told policymakers they could bring the bond-buying program to an end as planned June 30 without tapering purchases and not cause any market disruptions.

Several Fed officials said turmoil in the Middle East and the prospect of higher oil prices had made them shift their views of inflation risks to the upside.

As a result of these uncertainties, policymakers vowed to plan for an eventual exit from exceptionally easy monetary conditions based on a range of different economic scenarios.

(Reporting by Mark Felsenthal and Glenn Somerville; Editing by Neil Stempleman)

Analysts expect department stores such as Kohl's Corp (KSS.N) to post the biggest declines after tallying huge gains a year earlier, when consumer demand picked up steam and shoppers bought spring clothing.

March sales at stores open at least a year are likely to show a 0.9 percent fall across 25 chains tracked by Thomson Reuters. Same-store sales jumped 9 percent in 2010, when Easter was on April 4. This year the holiday lands on April 24.

Low consumer confidence and higher food and gasoline prices appear to be tempering any major recovery, even though shoppers have started to see improving economic data, including last week's reports that the unemployment rate dipped to 8.8 percent and nonfarm payrolls rose again.

"There is definitely a lot going on right now in terms of the inflation that we're seeing from fuel prices," said retail strategist John Long of consulting firm Kurt Salmon. "That's really just the tip of the iceberg."

On Tuesday, the International Council of Shopping Centers and Goldman Sachs said sales rose 2.8 percent in the week ended Saturday. The ICSC said it expected same-store sales to be flat to up 2 percent for March.

The Standard & Poor's retail index .RLX was up 1.2 percent on Tuesday and has risen 2.4 percent since February sales were reported on March 3. The S&P 500 .SPX is nearly flat over the same period.

The average price of regular gasoline is now around $3.66 per gallon, up from less than $2.83 a year ago, according to AAA. Much of the spike has come during 2011 amid unrest in the Middle East and Northern Africa.

It typically takes anywhere from four to six months of sustained price changes to get consumers to behave differently, Long said, so higher gas prices are not yet a huge concern.

Shoppers will also soon face more-expensive clothing, as retailers raise prices due to increased cotton and transportation costs. Those prices, combined with gasoline and food inflation, may curb spending later in the year, especially around back-to-school and winter holiday periods.

A decline in March same-store sales would be the first drop since August 2009.

For graphics showing same-store sales performance and expectations, click link.reuters.com/hyf88r

DECLINES EXPECTED

On Tuesday, drugstore operator Walgreen Co (WAG.N), one of the largest retailers that still reports monthly same-store sales, said they rose 3 percent, beating analysts' expectations of a 1.8 percent increase.

General merchandise sales rose 1.6 percent, while analysts had forecast a 1.3 percent drop.

* Tech shares will be a focus after Texas Instruments (TXN.N) launched a $6.5 billion takeover bid for National Semiconductor Corp (NSM.N), offering a 78 percent premium to merge two of the industry's oldest companies into a dominant force in analog microchips used in products from cars to phones.

* Texas Instruments stock traded in Frankfurt (TXN.F) was down 1.5 percent.

* Exchange operator Nasdaq OMX Group (NDAQ.O) said it will rebalance its benchmark Nasdaq-100 index, cutting the weighting of Apple (AAPL.O).

* U.S. chemicals group DuPont (DD.N) said the European Commission has approved its acquisition of Danish food ingredients and enzymes maker Danisco (DCO.CO) and it expected to close the transaction this month.

* Oil prices hovered near their highest levels since 2008 on Tuesday, with Brent near $121 a barrel, as prices were supported by the unrest in the Middle East and North Africa as well as delays to elections in Nigeria.

* Japan's Nikkei average .225 fell 1.1 percent on Tuesday with the mood soured by Tokyo Electric Power's fall to an all-time low. .T

* European stocks inched higher in thin volume in early trade, helped by rallying tech shares on consolidation hopes after the TI deal, while investors awaited the European Central Bank's interest rate decision and comment on Thursday.

* The ECB was expected to raise rates by 25 basis points from a record low in reaction to rising inflationary pressures in the euro zone. Two more 25-basis-point rate hikes have been factored in by year-end.

* Federal Reserve Chairman Ben Bernanke said a recent rise in U.S. inflation was driven primarily by rising commodity prices globally, and was unlikely to persist.

* Bernanke's remarks were in sharp contrast to recent comments made by a string of central bank officials, some of whom have argued the time was coming for the Fed to begin tightening monetary policy.

* Investors awaited the release of the Federal Open Market Committee's minutes from its meeting of March 15, due at 1800 GMT on Tuesday, to get more insight on the outlook for U.S. interest rates.

* Credit rating agency Moody's cut Portugal's sovereign debt one notch on Tuesday, saying an incoming government would likely need to seek financing support from the European Union as a matter of urgency.

* The S&P 500 met tough resistance on Monday, failing to break a level that has held since mid-February and ending flat even as a spate of deals and underlying strength in the economy spurred optimism.

* The Dow Jones industrial average .DJI rose 23.31 points, or 0.19 percent, to end at 12,400.03. The Standard & Poor's 500 Index .SPX rose 0.46 point, or 0.03 percent, to 1,332.87. The Nasdaq Composite Index .IXIC was down 0.41 point, or 0.01 percent, at 2,789.19.

* About 5.94 billion shares traded on the New York Stock Exchange, NYSE Amex and Nasdaq, the lowest total of the year.

(Reporting by Blaise Robinson; Editing by Dan Lalor)