March 1 (Reuters) - Wall Street expects U.S. dollar stores to report slower sales growth for the holiday season as high inflation and waning federal stimulus made consumers spend less on non-essentials.

Known for their $1 products, America's two largest cut-price stores Dollar General Corp and Dollar Tree Inc have been battling margin pressure by raising prices and focusing on more expensive products from clothes to home decor.

However, those efforts have met with a muted response as pressures mount on low-income families, Wall Street analysts believe.

"Their customer really is feeling it between gas prices, food and heating," said Gabriella Santaniello, founder of retail research firm A Line Partners.

"They (customers) are really just focusing on the necessities, and they're just not buying really anything else."

CONTEXT

Dollar Tree said in November it would start selling most products for $1.25, up from $1, due to inflation. U.S. producer prices rose by the most in eight months in January.

Dollar Tree's November-January quarterly earnings on Wednesday will show to what extent its price rises may have deterred customers or pushed them towards alternatives such as Walmart Inc.

Offsetting the negative impact of higher prices, however, high inflation could also draw non-typical customers into dollar stores for cheaper fresh produce and cereals, Santaniello said.

"The impact might be not great but this might lessen the blow," she said.

THE FUNDAMENTALS

** Analysts polled by Refinitiv expect Dollar Tree's per-share profit to decline 17% to $1.77, with same-store sales growth slowing from a year earlier

** Dollar General, which reports on March 17, will likely report modest declines in profit and same-store sales

WALL STREET SENTIMENT

** Dollar General's current mean price target implies a 23% upside to Monday's close, while Dollar Tree's is 9% higher

** Shares in both retailers are rated "buy"

(Reporting by Praveen Paramasivam in Bengaluru; Editing by Aditya Soni)