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Thursday August 9 12:10 PM ET, By ANNE D'INNOCENZIO, AP Business Writer

NEW YORK (AP) - Heavy discounting, along with the first wave of tax rebate spending helped lift retail sales the last two weeks of July, but the nation's biggest merchants nonetheless had mixed results for the month. As retailers announced their sales figures Thursday, the big winners continued to be discounters and low-priced chains including Wal-Mart Stores Inc. and Costco Wholesale Corp., a sign that massive layoffs and shrinking stock portfolios are keeping consumers' price-sensitive. Kmart Corp. and J.C. Penney Co. Inc., both of which are in the midst of a turnaround, also reported results that pleased Wall Street.

However, department stores, particularly Saks Inc. and Neiman Marcus, and apparel chains including Gap Inc. and The Limited Inc. again

suffered, languishing amid piles of discounted summer apparel. Retailers catering to teens also had mixed results, leaving analysts

uncertain about the back-to-school season. Another economic report released Thursday fed more worries about a softening labor market that could continue to hurt consumer spending. After a three-week decline, new claims for state unemployment insurance rose last week, suggesting employers are letting more workers go in a weak business environment.

``The employment picture is pegged to the economy. Consequently, there will still be caution,'' said Michael P. Niemira, vice president of Bank of Tokyo-Mitsubishi Ltd. ``The overall tone is that the climate is difficult and challenging.'' But, he added ``there are signs of hope,'' and pointed to the sales improvement in the latter part of July. ``Given the timing of the tax rebates and the sales pickup, one assumes that there is a direct relationship,'' said Niemira. ``The question is, how much will retailers be affected?'' Wal-Mart has offered to cash rebate checks in its stores, and said that so far, consumers who have taken advantage of the offer immediately spent about 25 percent of the money in Wal-Mart stores and 80 percent at Sam's Clubs. The discounter said it had a 6 percent sales increase at stores open at least a year. These sales, known as same-store sales, are considered the best indicator of a retailer's health. Wal-Mart's total sales rose 13.9 percent. Before the rebates started arriving, sales were generally poor for most retailers. The companies are concerned that when this short-term blip ends in late September, sales will fall back.

The Bank of Tokyo-Mitsubishi Ltd. Index, which measures the performance of 80 retailers, was up 3.4 percent for the month of July,

meeting Niemira's expectations. However, without Wal-Mart's sales, the index would have risen only 2.2 percent, Niemira said. Saks Inc., dragged down by a weakening consumer demand for luxury products, reported same-store sales fell 4.8 percent, worse than what analysts expected. The company, which operates Saks Fifth Avenue and department stores including Proffitt's and Parisian, also said it expects its second-quarter losses to be at least double what Wall Street expected.

But AnnTaylor Stores Corp., although it reported a dismal 17.4 percent drop in same-store sales, had some good news. Due to effective

inventory management throughout the spring season, which preserved profit margins, the retailer now expects second-quarter earnings to be a penny more than what analysts projected. July, with its big clearance sales, is one of the least important months in the retail calendar. But while August's performance is more indicative of the back-to-school season, July usually offers a glimpse of where the business is heading. Right now, the economy's weakness is making it hard for analysts to make projections. ``Right now, there is a lot of confusion about when all of this will end,'' said Niemira. Complicating matters is analysts' concern about the fact that many retailers might be staking too much on a big inventory of denim to boost fall sales.

``There's a glut of denim,'' said Jeff Feiner, managing director at Lehman Brothers. Some selected figures on July's sales at leading retailers:

- Abercrombie & Fitch, same-store sales down 14 percent; total sales up 26 percent.

- Gap, same-store sales down 12 percent; total sales up 5 percent.

- Kmart, same-store sales up 3.4 percent; total sales were up 2 percent.

- Kohl's, same-store sales up 14.3 percent; total sales gained 31 percent.

- Pacific Sunwear of California, same-stores sales down 5.3 percent; total sales up 30.2 percent.

- Sears, Roebuck and Co., same-store domestic sales down 3 percent; total sales down 2.5 percent.