updated 11/15/2006 2:55:11 PM ET 2006-11-15T19:55:11

Upscale U.S. retailers are voicing optimism about this year's holiday sales and see a stronger stock market as key to creating a solid, if not a blowout shopping season.

Saks Inc. and Bloomingdale's are expected to ride aggressive holiday gift promotions to strong sales, while Neiman Marcus and Bergdorf Goodman are forecast to be at the head of the class among retailers to the wealthy.

The lone grinch looming over the luxury sector this year is the chilly U.S. housing market, tempering what could otherwise be a dazzling season, industry analysts said.

Soaring home values over the first half of this decade helped fuel a consumer boom as homeowners tapped into that wealth. But in September, median U.S. home prices fell 2.2 percent from a year earlier, leaving some consumers feeling a little less flush and unlikely to splurge on pricier gifts.

"The value of their homes has definitely taken a hit," said Milton Pedraza, chief executive of the Luxury Institute, a New York-based research firm that focuses on America's wealthy.

This means consumers with a net worth ranging between $1 million and $10 million will spend somewhat conservatively on gifts, which should still add up to sales growth ranging between 8 percent and 12 percent above 2005, Pedraza said.

And despite the bleak housing outlook, the stock market and the overall employment picture are sources of optimism.

The Standard & Poor's 500 index is up 10.9 percent this year through Monday's close, compared with a nearly 1.8 percent gain last year through the same period.

According to the U.S. Labor Department, salaries and wages have also risen 3.3 percent in the 12 months ended in September, compared with a 2.3 percent gain in 2005 and a 2.6 percent gain in 2004.

"Much of the growth in income over the last couple of years and the continued strength in the stock market all bodes fairly well for high-income households," said Carl Steidtman, chief economist of Deloitte Consumer Business Research. "The luxury sector should do fairly well."

Despite those gains, and a relatively well-heeled consumer base that generally spends pretty freely, some upscale retailers such as luxury travel brand Tumi are preparing to fight it out for every holiday sale.

"For every up, there is a down, and all of this adds up to a little less confidence than there was 12 to 24 months ago," Tumi Chief Executive Laurence Franklin said in an interview.

"From a retail point of view, you have to work a little harder for each dollar ... The spending climate was a little freer in 2004 and 2005."

The American Affluence Research Center (AARC), an Aventura, Florida-based marketing and consulting firm, estimates wealthy Americans spent between $31 billion and $34 billion on gifts last year, which it said represents about 15 percent of the total holiday gift market.

That spending should decrease by 1 percent this year among Americans with an average net worth of $3.3 million and an average annual income of $324,000, according to an AARC survey.

From diamond necklaces and camel-hair coats to spa vacations, luxury retailers are increasing their selections and still expect a healthy holiday season.

"People have not stopped shopping and luxury is driving the entire market," said Faith Hope Consolo, head of the retail leasing and sales division of Prudential Douglas Elliman, Prudential Financial's real estate arm.

"For the first time in three years -- in the Christmas segment -- we're going to see a strong apparel market. Luxury apparel is going to be a very big item this year."

Viktor & Rolf and Michael Kors will be the hottest names in luxury apparel, Consolo said, adding that designer labels, not necessarily specific items, are what matters most this year.

Upscale department store chain Nordstrom Inc., which posted October same-store sales growth of 10.7 percent, is also in line for brisk holiday business, according to a Luxury Institute customer satisfaction survey.

Men's and women's luxury watches will be higher up on shopping lists this year, and diamond sales will be robust as well, said National Retail Federation Vice President Dan Butler.

Online retailer Amazon.com , which sold a pair of diamonds earrings for $94,000 last Christmas, is offering over 300,000 diamond encrusted watches this year, at prices ranging from around $7,500 to over $80,000.

"This Christmas," said Consolo, "is going to be the best in the last five years."

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