CHICAGO (Reuters) - U.S. retailers reported their 11th straight month of sales declines in July as shoppers continued to search for bargains and basics in the downturn.

Still, chains including Macy's Inc (M.N) and Gap Inc (GPS.N) gave upbeat profit forecasts as they discounted less merchandise and cut costs and margins improved.

Rising unemployment, cool weather and a lack of tax-free holidays like those in July 2008 kept shoppers at home or buying just what they needed last month, rather than stocking up heavily on back-to-school items.

"You still have a picture of the consumer remaining under pressure and having fewer dollars to spend," said Michael Dart, senior partner at Kurt Salmon Associates. "Every consumer group is being more practical and more budget-conscious."

July sales at stores open at least a year, a measure known as same-store sales, fell 5.1 percent from a year earlier, compared with June's 4.9 percent decline, according to Thomson Reuters data.

Sales may also have been hurt by consumers buying new cars under the "Cash for Clunkers" program, siphoning money away from other spending, said Ken Perkins of Retail Metrics.

All eyes are on August and September, with tax-free periods in some states moving into August and the later Labor Day holiday spelling delayed back-to-school shopping for many. September 2008 was the start of the streak of negative same-store sales, so comparisons will start to ease for retailers who have struggled to get shoppers into stores.

The International Council of Shopping Centers expects same-store sales to fall 4 percent in August after dropping 5 percent in July, based on its tally of 33 retailers.

Michael Niemira, the ICSC's chief economist, said the July results gave him optimism that retail sales have turned a corner after coming through a very weak period.

The Standard & Poor's Retail Index .RLX climbed 1.4 percent, outpacing a 0.5 percent drop in the S&P 500 .SPX.

TEEN SECTOR SHOWS WEAKNESS

ShopperTrak on Thursday said total U.S. foot traffic during the key back-to-school shopping season should fall 10 percent, with sales down 5.9 percent.

The biggest decline in July same-store sales was reported by teen apparel retailer Abercrombie & Fitch Co (ANF.N) -- 28 percent. Still, that was only slightly worse than the 26.9 percent decline analysts had expected, and Abercrombie shares rose 4.6 percent.

"Teen sales were disappointing in the main but I think August is a more important month," said Barclays Capital analyst Jeff Black. "They'll be given a little respite here."

American Eagle Outfitters Inc (AEO.N) and Aeropostale Inc (ARO.N) missed sales expectations, but both teen retailers raised their second-quarter forecasts.

Children's Place, which caters to the younger set, topped sales expectations with a 4 percent decline and forecast a slighter narrower quarterly loss than Wall Street expected.

RAISING EXPECTATIONS

Monthly retail sales reports have been less of a barometer of the overall economy since Wal-Mart Stores Inc, the No. 1 retailer, stopped disclosing its data earlier this year.

"Wal-Mart is really, truly the one retailer that is stealing most of the market share from the other discounters and the other retailers," said Martis.

Dollar Tree Inc said traffic in its stores continues to rise as shoppers look for cheap prices on health and beauty products, cleaning supplies and food. Its sales rose more than expected. But sales at Big Lots Inc, which also caters to bargain hunters, fell more than analysts forecast, as higher-ticket items like furniture were weak.

TJX Cos Inc, which has attracted more customers to its off-price T.J. Maxx and Marshalls chains, reported a better-than-expected rise in same-store sales and said earnings should come in near the high end of its forecast.

Gap's same-store sales fell 8 percent, a half point better than expected. Women's apparel sold better than men's at its Gap, Banana Republic and Old Navy chains. Gap said earnings could come in as much as 4 cents ahead of analysts' expectations, driven by improved margins.

Even though J.C. Penney Co Inc's sales fell more than anticipated, it raised its earnings guidance as margins and operating expenses improved.

Limited Brands Inc saw same-store sales fall less than expected and its shares soared 15 percent to their highest level in nearly 10 months. The Bath & Body Works chain did well, aided by its relaunched Signature collection of body products, said Lazard Capital Markets analyst Todd Slater.

Lower gasoline prices may have spurred some consumers to spend, but crimped sales at chains that sell gas, such as Costco Wholesale Corp and BJ's Wholesale Club Inc. Sales fell more than expected at both chains.

The Standard & Poor's Retail Index climbed 1.5 percent, outpacing a 0.3 percent decline in the broader S&P 500.