U.S. shoppers set to trade down with holiday jewels

By Aarthi Sivaraman

NEW YORK (Reuters) - Hit by economic fears like rising gas prices, a crumbling housing market and smaller Wall Street bonuses, U.S. shoppers may not be inclined to splurge on the most expensive of baubles this holiday.

Instead, since times are tougher, jewelry retailers are setting up to face wary consumers who may spurn expensive gold and diamonds this season, for more affordable pearls, semi-precious stones and silver.

"Across the board, all of them are going to see customers opting for less expensive jewelry items this season," said Pam Danziger, president of Unity Marketing, a market research firm specializing in the luxury segment.

"This season is going to a testy one for everybody," Danziger said.

U.S. consumers have tightened their wallets recently, hit hard by multiple problems like the dizzying subprime meltdown, huge Wall Street losses and spiking costs for food and gas.

"We are coming off a very strong summer, and yet what we are seeing in the past couple of months is pretty weak growth," said Kamalesh Rao, director of economic research for Spending Pulse, the retail data service of MasterCard Advisors.

Jewelry sales rose a less-than-dazzling 3.4 percent in October and 1.1 percent in September, Rao said.

For the holiday period, he forecast sales to rise 3 to 4 percent.

"The lower-income consumers probably won't even go to stores this year," said Kenneth Gassman, president of the Jewelry Industry Research Institute.

On the other hand, the rich will still splurge on the $50,000 jewelry gift this holiday season, industry watchers pointed out.

"The strongest part is at the very high end. That is the healthiest part of the market," said Mark Vadon, chief executive of online jeweler Blue Nile Inc (NILE.O), which expects strong holiday sales.

Tiffany & Co (TIF.N) has forecast radiant sales for the period that includes November and December. In August, Tiffany raised its full-year forecast and said it would have 14 percent growth in sales. For the fourth quarter of 2006, Tiffany reported revenue of more than $986 million.

But even the wealthy, apparently, have worries.

Though gas prices or mortgages are less of a concern, the wealthy fret over the stock market, which has experienced a volatile few months, and are ever mindful of their investments even as they spend, experts said.

"FLASH FOR CASH"