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Thursday August 9, 12:16 pm Eastern Time

NEW YORK, Aug 9 (Reuters) - An industry group representing the leading U.S. discount retailers forecast on Thursday back-to-school

spending will drop almost 5 percent this year on consumer fears about the economy and job security.

Families will spend an average of $300 on back-to-school items, down from an average $315 last year, said Arlington, Virginia-based

International Mass Retail Association (IMRA), adding the number is preliminary. The figures are the latest in recent surveys pointing to a slowdown in back-to-school spending, even as families begin receiving their tax rebate checks and some states tout tax holidays on certain back-to-school gear.

``It is our opinion that consumers are saying that they will be spending less due to concerns about the health of the economy and a growing fear for their overall job security,'' said Britt Wood, a vice president at IMRA. ``We predict this year is going to be a little worse than last year.'' The expected decline in back-to-school spending should help sales at mass retailers as shoppers seek to stretch their dollars, Wood said.

The IMRA comprises 191 of the U.S.'s biggest discount chains, including Kmart Corp., Wal-Mart Stores Inc., Target Corp., Best Buy Co. and Circuit City Stores Inc. Final results of the survey, which polled 1,000 consumers nationwide, will be released next week. Shoppers, strapped by a weakening economy and rising layoffs, turned to discounters in July as they sought bargains on air conditioners, school

items and food, according to sales reports for the month released Thursday by U.S. retailers.

Despite the spending slowdown, mass retailers still expect buoyant sales in August, a key month for the retail industry that's second in importance only to December, said Wood.

``Our numbers are showing that people are going to be heading to mass retailers and one-stop shopping,'' Wood said. ``We feel there is a

slowdown in the economy, but mass retailers are the ones best poised to take advantage of that.''

Backing Wood's comments were better-than-expected same-store July sales issued by Wal-Mart on Thursday. The world's biggest retailer said that its July same-store sales rose 6 percent, while total sales jumped 14 percent to $16.02 billion. However, upscale retailers Federated Department Stores Inc. and Saks Inc. said same-store sales fell a disappointing 4.2 percent and 4.8 percent, respectively.

In another survey released in late July, American Express said that families will spend an average of $527 on back-to-school items, down

from $548 in 2000. The retail industry is hoping for a much-needed boost from back-to-school spending in August, which sets the tone for apparel sales for the rest of the year, said Scott Krugman, spokesman for the National Retail Federation in Washington. In a separate survey, the NRF forecast that consumers will spend an average of $457 per household on back-to-school shopping, down from $549 last year. ``We predict that 40 percent of the $38 billion from tax rebates will come back into the economy through consumer spending. The tax rebate alone won't save the retail industry, but we are hopeful this will be an impetus for the beginning of a recovery,'' Krugman said.

Thursday August 9, 2:07 pm Eastern Time, By Elizabeth Lazarowitz

NEW YORK, Aug 9 (Reuters) - Stocks trimmed their losses in early afternoon trading on Thursday, although signs that the sagging U.S.

economy has not yet gotten itself back on track dampened investors' appetite for stocks. A mixed batch of retail sales reports were among the latest causes of investor jitters, after retailers like Abercrombie & Fitch ) reported a bigger-than-expected drop in July sales. The economic outlook was no less grim, following a rise in jobless claims and Wednesday's downbeat ``beige book'' summary of regional economic conditions released on Wednesday, painted a picture of lagging growth. ``There are all these incremental pieces of news showing that the economy is still slowing -- there's nowhere to run to and no place to hide, '' said Donna Van Vlack, director of trading at Brandywine Asset Management.

Major stock indexes pulled up from their session lows, struggling back after Wednesday's brutal session, but analysts were doubtful the market would make a significant come-back. ``At this point, who isn't a skeptic?'' said Charles Payne, analyst at Wall Street Strategies. ``We're getting all kinds of contradictory signals from the market. At least on a short-term basis, I think everyone would have to agree that the market is oversold, but that still doesn't mean it's going to rebound.''

The technology-heavy Nasdaq composite index dropped 8.18 points, or 0.42 percent, at 1,958.18, posting its fifth straight session of losses. The Standard & Poor's 500 index was off 2.26 points, or 0.19 percent, at 1,181.27, and the Dow Jones industrial average fell 22.62 points, or 0.22 percent, to 10,270.88. Nortel Networks Corp. slipped 17 cents to $7.45 and was the most-active stock on the NYSE. The world's largest telecommunications equipment supplier said it plans to privately sell $1 billion of convertible senior notes. The sale of the seven-year notes is expected on Thursday night, a person close to the sale said.

A convertible bond is a hybrid security that can be converted into company stock, potentially diluting the stock's value. Youth-oriented apparel retailer Abercrombie & Fitch said sales dropped 14 percent from the year-ago, more than double the drop of 4 to 6 percent analysts had expected. The company also said third- and fourth-quarter earnings would be below analysts' forecasts. Its stock tumbled $5.64 to $30.50. Gap Inc. the No. 1 apparel chain's sales fell 12 percent from a year ago. Gap lost $1.29 to $25.86. One bright spot was women's apparel retailer AnnTaylor Stores Corp., which said its sales fell 17.4 percent, but that business picked up in the last week of July. Its shares jumped $3.13 to $31.80. ``People are looking at retail sales for an indication of where the economy is going,'' said Tom Schrader, a trader at Legg Mason Wood Walker. ``And if you're seeing people shopping more at Kmart and Sears and not at Saks or Neiman Marcus, it tells you they're not so confident.'' Indeed, U.S. shoppers turned to discounters as they sought bargains on air conditioners, back-to-school items, shampoos and food, leaving apparel and department store chains pinched by stunted sales.

Wal-Mart Stores Inc., the world's largest retailer, said sales rose 6 percent in July, above its expectations. Its shares fell 83 cents to $53.70.

Among department stores, Federated Department Stores Inc., parent of Macy's and Bloomingdale's, said sales dropped 4.2 percent. It fell 28 cents to $37.72.