By Aarthi Sivaraman

NEW YORK, Dec 26 (Reuters) - U.S. retail shares traded lower on Friday following data showing the first decline in holiday sales in at least 40 years, though a handful of stores defied the trend.

The Standard & Poor's Retail Index .RLX fell 0.3 percent, with department store chains like Dillard's (DDS.N), Macy's Inc (M.N) and the more upscale Saks Inc (SKS.N) posting share declines of 9.4 percent, 2.7 percent, and 5.7 percent respectively.

Among specialty retailers, American Eagle Outfitters (AEO.N) fell 0.7 percent, while Gap Inc (GPS.N), which owns the Banana Republic and Old Navy chains, was down 0.4 percent.

The latest data on the holiday shopping season came from SpendingPulse, the retail data service of MasterCard Advisors, which showed that sales fell 2 percent in November and 4 percent from Dec. 1 to Dec. 24.

The firm called the 2008 holiday shopping season "one of the most challenging ... we've ever had in modern times."

Overall, holiday sales fell as much as 4 percent, excluding gasoline, said SpendingPulse, which estimates U.S. retail sales across all forms of payment including check and cash.

Consumers who have contended with a year-long recession, job losses and tight credit, largely cut their spending this holiday shopping season.

The holiday shopping season usually commences the day after U.S. Thanksgiving, which fell on Nov. 27 this year, till the eve of Christmas on Dec. 24.

The change in consumers' mindset is here to stay, said Candace Corlett, president of retail consulting firm WSL Strategic Retail.

"The longer we are stuck in this fearful environment, where everybody is so afraid of what the next disaster will be ... the more entrenched the mindset of saying 'no' will become," she said.

Patricia Edwards, a retail consultant at Storehouse Partners, warned that the country's economic troubles could extend well into 2009.

"These (sales) numbers do not yet fully reflect what the consumer is in for in the next year and the reality of what's going to happen," she said

U.S. retailers' hopes that the last weekend before Christmas would bring a flurry of shoppers to stores were dashed, as poor weather kept many consumers huddled indoors. [nN23474734]

But bad weather toward the end of the season may have helped online sales, SpendingPulse said, adding that the category showed the least decline at 2.3 percent compared to 2007's holiday season.

Shares of Amazon.com Inc (AMZN.O) rose 0.8 percent. Amazon said it posted its best holiday sales yet, as more than 6.3 million items were ordered on its website worldwide for the peak shopping day of Dec. 15. [nN26298943]

Other stocks that rose included specialty clothing retailers such as AnnTaylor Stores Corp (ANN.N), up 2.8 percent, Liz Claiborne Inc (LIZ.N), up 17 percent, and Aeropostale Inc (ARO.N), up 2.4 percent, despite a drop of up to 21 percent in holiday apparel sales as measured by SpendingPulse.

Among the discount retailers, Wal-Mart Stores Inc (WMT.N), the world's largest retailer, was up 0.2 percent, and Target Corp (TGT.N) rose 0.9 percent.

"What a lot of people are looking at right now... is they are saying this is as bad as it is going to get," Edwards said.

"(People are thinking) things are going to get better. Stocks are cheap, let's fish in our portfolios today for the coming year," she said. "If they are short, they are covering, and if they haven't had any, they are buying some. It is a value play."

Jones Apparel Group Inc (JNY.N), whose brands include Nine West and Jones New York, said it reduced its $1.25 billion lines of credit to a single line of $600 million in return for more flexibility.[nN26257923]. Its shares gained 34.5 percent. (Editing by Leslie Gevirtz and Derek Caney)