NEW YORK (

TheStreet

) -- Discount isn't dead.

Not judging by Wednesday's trading session, at least, when shares of dollar-store retailers rallied, with some names reaching fresh 12-month highs.

Family Dollar Stores'

(FDO)

stock, for one, hit a new peak of $41.83 Wednesday afternoon, before falling back some, while

Dollar General

(DG) - Get Report

notched a 52-week high of $30.20.

Shares of

Fred's

(FRED)

,

Dollar Tree

(DLTR) - Get Report

and

99 Cents Only Stores

( NDN) also inched higher Wednesday, even as the rest of the retail sector ended mostly in the red.

Earlier this week Paulson & Co., the hedge fund run by famed subprime short seller John Paulson, purchased 6 million shares of Family Dollar at $36.61 apiece, for an outlay totaling $220 million.

Paulson's bet may seem risky to some, as investors fear higher income shoppers who were forced to trade down during the depths of the recession will return to full-priced retailers sooner rather than later.

Just such a

shift in consumer shopping trends

seems have afflicted discount behemoth

Wal-Mart

(WMT) - Get Report

. In its first period of 2010, the company saw yet another decline in traffic, with same-store sales slipping 1.1% -- the fourth consecutive quarter in which

Wal-Mart posted a drop

in comparable sales.

Shoppers are slowly but surely opening their wallets to discretionary merchandise. Both

Target

(TGT) - Get Report

and

BJ's Wholesale Club

(BJ) - Get Report

said traffic increased in their stores

during the first quarter

, with consumers spending on higher-margin items and non-essentials like home goods and apparel.

In order to hold on to their shoppers, dollar stores may need to take some of these cues and upgrade their merchandise selection. Dollar General, in fact, has already started, offering more brand names like Hanes underwear and L'Oreal cosmetics.

--Reported by Jeanine Poggi in New York.

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