US STOCKS- Wall St sags,'cliff' angst steals retailers' Christmas

* Amazon slumps with retail stocks

* S&P/Case-Shiller data tops expectations

* Obama heads back to Washington after vacation

* Dow off 0.4 pct, S&P 500 down 0.6 pct, Nasdaq off 0.8 pct

NEW YORK, Dec 26 (Reuters) - U.S. stocks fell on Wednesday

as retailers' shares dropped sharply after a report that showed

holiday shoppers were less enthusiastic than last year, with

investors saying worries about the "fiscal cliff" may have kept

them away from stores.

The Morgan Stanley retail index skidded 1.8 percent

as holiday-related sales rose 0.7 percent from Oct. 28 through

Dec. 24, compared with a 2 percent increase last year, according

to data from MasterCard Advisors SpendingPulse. The SPDR S&P

Retail Trust slipped 1.5 percent to 61.24.

Janna Sampson, co-chief investment officer of OakBrook

Investments in Lisle, Illinois, said worries about "fiscal

cliff" tax hikes and spending cuts next year had likely kept

shoppers from a last-minute rush to the stores.

"I think people held back this year, just worried about that

bigger cut out of their paycheck next year and having to tighten

their belt," she said. "If you've got to tighten your belts

starting in January, people start worrying about overspending."

Department stores' stocks slid. Macy's lost 3 percent

to $36.41, while Saks also fell 3 percent and traded at

$10.30, near its session low. Online retailer Amazon.com

fell 3.1 percent to $250.52.

President Barack Obama is due back in Washington early

Thursday for a final effort to negotiate a deal with Congress to

bridge a series of tax increases and government spending cuts

set to begin next week. The president will leave Hawaii later on

Wednesday, arriving in the capital early on Thursday.

The Dow Jones industrial average slipped 45.61

points, or 0.35 percent, to 13,093.47. The Standard & Poor's 500

Index shed 8.66 points, or 0.60 percent, to 1,418. The

Nasdaq Composite Index dropped 23.10 points, or 0.77

percent, to 2,989.50.

Volume was light, with only 1.55 billion shares having

traded at midday on the New York Stock Exchange, the Nasdaq and

the NYSE MKT. Many senior traders were still on vacation during

this holiday-shortened week and major European markets were

closed for the day.

Still, Wednesday marked the third day of losses for the S&P

500 in its worst three-day decline since mid-November.

A Republican plan that failed to gain traction last week

triggered the S&P 500's recent drop, highlighting the market's

sensitivity to headlines centered around the budget talks.

"No one is hitting the panic button yet, and part of that

lack of panic selling is the notion that the Street is getting

comfortable with the likelihood of a temporary fix for the

fiscal cliff - something that gets us over the date of Jan. 1

in a way where it can be re-addressed," said Peter Kenny,

managing director at Knight Capital in Jersey City, New Jersey.

During the last five trading days of the year and the first

two of next year, it's possible for a "Santa rally" to occur.

Since 1928, the S&P 500 has averaged a gain of 1.8 percent

during that period and risen 79 percent of the time, according

to data from PrinceRidge.

The benchmark S&P 500 Index is up 12.8 percent for the

year, and has recouped nearly all of the losses after the U.S.

elections when the fiscal cliff concerns moved to the forefront.

This is the best yearly gain for the S&P 500 since 2010.

Data showed U.S. single-family home prices rose in October,

reinforcing the view that the domestic real estate market is

improving, as the S&P/Case-Shiller composite index of 20

metropolitan areas gained 0.7 percent in October on a seasonally

adjusted basis.

In the energy sector, China's Sinopec Group and

ConocoPhillips will research potentially vast reserves

of shale gas in southwestern China over the next two years,

state news agency Xinhua reported. Conoco's stock fell 0.8

percent to $57.99.

An outage at one of Amazon.com Inc's web service centers hit

users of Netflix Inc's streaming video service on

Christmas Eve and was not fully resolved until Christmas Day, a

spokesman for the movie rental company said on Tuesday. Netflix

rose 0.8 percent to $90.97.

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