UPDATE 2-Australia retailers David Jones, Myer face headwinds

* Australia retailers likely to see strong Christmas

* David Jones, Myer facing headwinds

* David Jones Q1 sales up 2.2 percent, Myer up 5.2 percent

* Express optimism over consumer spending

* Myer shares down one percent, David Jones down 3.1 pct (Changes slug, adds comment, economic background)

By Morag MacKinnon

SYDNEY, Nov 5 (Reuters) - Myer Holdings Ltd (MYR.AX) and David Jones Ltd (DJS.AX), Australia's top two department store chains, are poised to gain from a strong Christmas sales period but face headwinds of rising interest rates.

The two retailers reported rises in first-quarter sales on Thursday and expressed optimism over the outlook for consumer spending ahead of the crucial Christmas trading period. After that, analysts said, their fortunes may wane.

December is a crucial month for Australia's department stores and can account for as much as one third of their annual profit.

"Australians generally spend up pretty big over the Christmas period, regardless of whether they've got money or not and that's been a consistent pattern," said David Taylor, a market analyst at CMC Markets in Sydney.

"Christmas will probably surprise to the upside, 99 percent of the time it does," he said, but warned that little government stimulus and rising interest rates could pull people away from the department stores after the holiday.

The Australian government handed out billions in bonus stimulus payments to households in December last year and in April to support the economy during the depths of the global credit crisis.

David Jones shares were down 3.1 percent at A$5.25 at 0228 GMT while Myer was 1 percent lower at A$3.80. The S&P/ASX 200 index .AXJO was 0.5 percent lower at 4,515.9.

Australian government data this week showed that retail sales unexpectedly fell in September and sales for the quarter as a whole also dipped, reflecting the fading effects of government stimulus handouts that had kept sales relatively buoyant during the global downturn. [ID:nSYD529174]

Retail sales account for around 23 percent of Australia's A$1.1 trillion ($1 billion) economy. The sector is the biggest employer with about 15 percent of all jobs.

Australia's central bank has raised rates twice in the last two months as the economy recovers, and more increases are on the way, pushing up mortgage repayments and forcing households to trim discretionary spending.