Once again, oil prices are spiking and shares of top retailers are selling off amid fears that consumers will stop flocking to their stores.

Every time this song and dance has played out in the market in recent memory, buyers have been rewarded. But now that rising long-term interest rates have been thrown into the mix, will this time be different?

The stock market has fared well so far in 2006. The

S&P 500

and the S&P Retail Index are both up 3.3% for the year. The gain is a testament to Wall Street's confidence that inflation is under control and the economy has the strength to absorb oil prices over $60 a barrel, a cooldown in the housing market and higher interest rates.

With geopolitical factors pushing crude futures up above $68 a barrel, bulls can rest assured they've been here before and lived to trade another day. But with the yield on the 10-year Treasury note flirting with 5% for the first time since 2002, this market could be headed into new territory.

"We think the lag effect of higher rates will significantly affect consumer spending," says Ken Perkins, president of market research firm RetailMetrics. "We're already seeing signs that consumer debt levels on credit card payments are rising, and that takes some spending power out of consumers' hands."

Meanwhile, Perkins notes that the broader impact on spending comes from the housing market.

"Clearly there is a slowdown unfolding

in housing. To the extent that it accelerates to any degree, it's really going to put a pinch on consumer spending, because that's been such a huge source of funds for consumers -- the ability to refinance their house and take some cash out."

Last week, retailers reported their March results and attributed weak sales growth to this year's late Easter holiday, which pushed sales into April. Perkins says he expects the "Easter shift" to result in a strong showing this month, but he believes summer sales will suffer as rates continue to rise along with gas prices.

Economists expect the Commerce Department to report Thursday that retail sales rose 0.5% in March from a year earlier. Last year, retail sales declined 1.4% in March.

Meanwhile, the Energy Department estimated Tuesday that the price for regular-grade gasoline will average $2.62 a gallon this summer, barring unexpected supply disruptions. That would mark a 25-cent increase from the average levels recorded last summer.

"Higher gas prices could hurt consumer discretionary spending as the summer unfolds," says Marie Driscoll, a retail analyst with Standard & Poor's. "That's going to hurt the lower-income consumers the most. We expect consumer spending to decelerate through the course of the year."

Price action in the retail sector reflects these concerns. Over the last three trading days, the S&P Retail Index has shed 2.1%. Shares of the world's largest retailer,

Wal-Mart

(WMT) - Get Report

, are off by 3%.

Target

(TGT) - Get Report

has dropped 2.7%, and

Best Buy

(BBY) - Get Report

is lower by 3.6%.

Meanwhile, even the stalwarts of the home-improvement sector have shown some wear and tear.

Home Depot

(HD) - Get Report

is off more than 5% from its March highs, while its counterpart,

Lowe's

(LOW) - Get Report

, is down 6%.

Despite the overall strength in the stock market, the selling over the last few days reflects concerns about the ability of consumers to keep powering the economy as so many trends turn against them. Similar worries came to the fore after Hurricane Katrina swamped New Orleans last fall and oil prices jumped over the $70-a-barrel mark. Fourth-quarter GDP growth slowed to a mere 1.7% as part of the economic fallout from the catastrophe, down from the 4.1% growth logged in the third quarter.

Now, economists are expecting economic growth to rebound in the first quarter to around 4%. With gold, silver and other commodity prices on a tear, investors are concerned that the economy is in danger of overheating and breeding inflation. That could inspire the

Federal Reserve

to continue its 15-month campaign of raising short-term interest rates for months into the future, pushing

long-term rates higher.

"Consumers have a negative savings rate now in this country, and at some point that has to change," says Driscoll. "Right now, it doesn't really pay to save money with rates where they are. If they get higher, then consumers may decide it's time to start putting some money in the bank, but I don't think we're at a point where there's going to be any major slowdown in spending."

For their part, consumers seem to feel good about things for now. The Conference Board recently reported that its consumer confidence index rose to 107.2 in March, approaching a four-year high. But within that report, the spread between the present situation index and the expectations index was troubling. The present situation index rose to 133.3 from 130.3, while the expectations index was just 89.9.

"The improvement in consumers' assessment of present-day conditions is yet another sign that the economy gained steam in early 2006," the Conference Board said in a press release. "Consumer expectations, while improved, remain subdued and still suggest a cooling in activity in the latter half of this year."

Altogether, a growing chorus of observers appears to be bracing for consumers to pull back this year.

"I've been surprised by the resilience of American consumers and their ability to continue to spend," says Perkins. "I was expecting a spending slowdown at the end of last year into this year, and it hasn't really materialized yet. But, it seems to be under way. The Fed is trying to engineer it to be somewhat gradual in nature. The question is whether they'll miss the mark or overshoot the mark."