Surprisingly upbeat holiday reports from

Yahoo!

(YHOO)

and

Wal-Mart

(WMT) - Get Report

were enough to inspire a rally in stocks Wednesday, although some worried the good news was being interpreted too broadly.

Sell-side analysts fueled the fervor by issuing several favorable reports, including one by U.S. Bancorp Piper Jaffray on

Amazon.com

(AMZN) - Get Report

, which cited strong holiday e-commerce traffic.

Economists closely monitor consumer spending because it makes up two-thirds of U.S. gross domestic product. While overall spending remains sluggish, and discounts continued to prop up sales, the positive comments came amid a general absence of negative ones. At least for a day, it seemed like concerns about a horrible Christmas season might be overblown.

"I think it's consistent with the view that things are deteriorating more slowly in the economy as a whole," said Josh Feinman, chief economist at Deutsche Asset Management. "Consumer spending is holding in a little better than people had feared."

Month Over Month

Investors were even able to find a bright side in a report from Redbook Research showing overall retail sales fell 4.5% in the first three weeks of December compared with the same period in November. The result, which would require a fairly radical backloading of December buying to flatten out, was actually slightly less grim than analysts had forecast, and did little to squelch the buying.

Shares of Yahoo! lately rallied $1.29 to $17.93. Amazon.com gained $1.26 to $11.09, while

eBay

(EBAY) - Get Report

rose $3.10 to $66.91. Meanwhile, Wal-Mart rose $1.25 to $58.38, and

Target

(TGT) - Get Report

climbed 64 cents to $38.68.

Virtual Christmas

"E-commerce is much healthier than people continue to give it credit for," said Jordan Rohan, analyst at Soundview Technology, who notes that consumers are getting increasingly accustomed to making purchases on the Internet.

Yahoo! said the volume of purchases made by users of its online shopping engine soared 86% during the holidays from the same period last year, while Yahoo! users spent $10.3 billion in the fourth quarter. Yahoo!, which collects a small royalty on sales generated from its site, said bargain shopping was "one of the big themes that prevailed this year as numerous merchants enticed consumers to shop online by offering exclusive online sales or attractive discounts."

The most popular products were video game consoles, digital cameras and clothes.

"This would suggest some upside for Yahoo!'s fourth quarter in the order of $10 million in revenues or so," Rohan said, adding that Yahoo!'s business model is so efficient that increased revenue could translate into a penny or two of earnings-per-share upside. According to Thomson Financial/First Call, 24 analysts expect Yahoo! to post fourth-quarter earnings of a penny, compared with 13 cents a share last year. They expect revenue of $170.1 million, compared with $310.9 million a year ago.

U.S. Bancorp Piper Jaffray senior research analyst Safa Rashtchy said the latest data point to 25% growth in electronic commerce spending in 2002.

Rashtchy said he expects Amazon to meet or beat his revenue forecasts, citing full holiday traffic, strength in unit sales and a "surprising increase" in electronic prices. "We believe the strength of the unit sales will more than offset lower overall average prices and help Amazon with the top-line growth," wrote Rastchy, who maintained his outperform rating on the stock. His firm hasn't done any underwriting for Amazon.

Still Small

But others point out that online shoppers remain the minority. "Online shopping has grown very fast but again, it's still a very small part of total retail sales," said Ira Silver, senior retail adviser to Telecheck, a check acceptance company that compiles retail data.

Silver estimated that online sales add about 1% to 3% to total retail sales. "That's very small, so there is a lot of room to grow. But until that type of shopping becomes a significant portion of total sales, it won't have a significant impact on total sales growth," he added.

Online sellers weren't the only ones with glad tidings. Wal-Mart, the world's largest retailer, said Wednesday its December same-store sales would be at the upper end of previously issued guidance of a 4% to 6% growth.

The retail giant said sales were strongest in electronics, toys and ladies' apparel, and in seasonal items such as wrapping, trees, lights and other decorations. Wal-Mart got there without any significant discounting, said Ulysses Yannas, analyst at Buckman, Buckman & Reid.

"Sales were on-plan at most discount and department stores during the third week of December, as retailers scrambled to capture pre-Christmas sales in a wave of promotion and freebies," wrote Goldman Sachs retail analyst George Strahan this morning. "We continue to bias portfolios to high-quality growth stocks such as Wal-Mart,

Kohl's

(KSS) - Get Report

, and

Target

(TGT) - Get Report

," wrote Strahan, adding that

Sears

(S) - Get Report

"remains our favorite value play."

But Yannas is still cautious. "I cannot stomach any high multiples for retailing, including Wal-Mart, which is the best of the best," said Yannas, who has a hold rating on Wal-Mart. The stock is trading at about 40 times 12-month trailing earnings, while Kohl's is selling around 53 times earnings, he said. Yannas considers a reasonable multiple to be about 30 times trailing earnings.

"I have what you call acrophobia for the stocks," he said. "The reason for it is that retailing has over the years been full of surprises, both positive and also negative."