UPDATE 3-Wal-Mart ready for price fight this holiday season

* Says to cut holiday season prices, lead in entertainment

* To introduce new U.S. formats, expand internationally

* To increase spending on store remodels

* Shares close down 2.1 pct at $50.63, Amazon down 1.6 pct (Adds analyst comment, updates stock price)

SAN FRANCISCO, Oct 21 - Wal-Mart Stores Inc will slash prices each week this holiday season as the discount retailer fights off rivals and strives to keep its newly won market share this holiday shopping season.

Shares in the world's largest retailer fell more than 2 percent after it pledged to "reduce prices by hundreds of millions of dollars each week" and raised investor concerns over its ability to protect margins.

The aggressive strategy, announced at its analyst meeting on Wednesday, pressured shares of rivals including grocery stores like Safeway Inc, discount retailers like Dollar Tree and Family Dollar Stores Inc, and online leaders like Amazon.com.

"I am competitive by nature and I want to win," said CEO Mike Duke in his opening remarks. "There is no doubt in my mind that Wal-Mart will continue to win in retailing all around the world."

Safeway shed 4.1 percent, Amazon declined 1.6 percent and Dollar Tree fell 3.4 percent.

Joseph Feldman, a retail analyst with Telsey Advisory Group, said worries over Wal-Mart's gross margin was likely pressuring its shares.

"Some people have been a little frustrated," he said. "You're the leader, but at what cost?"

He also said there was some disappointment that Wal-Mart did not comment on its U.S. same-store sales, or sales at stores open at least a year. Earlier this year, it stopped reporting those sales on a monthly basis.

PRICES CUT ON TOYS, BOOKS, MORE

Wal-Mart has already rolled out aggressive price cuts ahead of the 2009 holiday season. It is offering more than 100 toys for $10 each and it has cut prices on highly anticipated hardcover books by 60 percent or more, igniting a book price-cutting war.

Wal-Mart intends to be the price leader in entertainment products this holiday season, said John Fleming, chief merchandising officer for the company's Walmart U.S business.

Fleming said that the holiday season would be tough but that he likes Wal-Mart's chances.

The company is also doing a good job of retaining new customers who are shopping more frequently and across the entire store, said Eduardo Castro-Wright, vice chairman who oversees the U.S. business.

Wal-Mart has seen more higher-income shoppers come into its stores during the recession. Wal-Mart said that in February, 17 percent of traffic growth in its U.S. stores came from new households and the majority of those households had annual income of more than $50,000.

Those new customers are spending more than the average Wal-Mart shopper, who typically has a lower annual income.

There had been some concerns that shoppers who came to Walmart stores for low prices on basics such as food might not decide to buy higher-margin items.

Wal-Mart is meeting with analysts on Wednesday and Thursday. Duke kicked off the two-day event by telling Wall Street that the world's largest retailer has more room to grow, both at home and internationally.

Duke said the company's expenses should grow less than sales. He said that Wal-Mart will work to improve its expense structure by driving more productivity and efficiency.

It will also put more money toward remodeling its U.S. stores to retain its shoppers even after the economy improves.