NEW YORK — Toy sellers' fears of a widespread boycott of Chinese-made toys have not taken hold so far, despite the recall of more than 20 million playthings made there. Merchants are reporting an improvement in business, including strong early sales of certain key holiday items.

Still, shoppers' concerns over safety are still high. And mounting financial concerns could force shoppers to pull back.

"Consumers are still confused," said Ron Boire, president of Toys "R" Us Inc.'s North American division, noting that there are some parents still concerned about where products are made. But he is not seeing "a sea change."

That's a big relief for the nation's merchants, since more than 80 percent of toys sold in the U.S. are made in China.

Still, consumers like Kristen Chase, 31, the mother of a 3-year-old girl and 8-month-old boy, say they are being more cautious in selecting toys.

"I am not avoiding all Chinese products," said Chase. "I am just looking at safe toys."

A bigger worry, Boire said, is the economy. "Clearly, the economy has changed. Obviously, that is a question mark for the holiday season."

The toy industry is less vulnerable to a challenging economic environment than other sectors like apparel, since parents usually cut back on spending on themselves before reducing their buying for their children. Still, if parents buy only one or two fewer toys each this holiday season, that collective frugality could derail the industry's rebound made since late last year.

Meanwhile, Wal-Mart Stores Inc. fired its first salvo in the holiday discounting toy wars, announcing price cuts from 10 percent to 50 percent on products including some new holiday toys like Hasbro Inc.'s interactive parrot called Squawkers McCaw. Laura Phillips, Wal-Mart's chief toy officer, promised that the world's largest retailer will be unveiling more price reductions on holiday toys every week in October.

"We clearly understand the concerns around spending," Phillips said.

But price competition is just part of the problem — the toy industry needs to keep churning out big hits to compete with the array of electronic gadgets like cell phones and iPods.

According to Jim Silver, editor of Toy Wishes magazine, which is set to reveal its predictions for the season's top dozen hot toys Tuesday, there are more toys this year that are connected to the Internet or to a TV monitor.

"Kids are becoming more high-tech, and manufacturers are really changing their offerings," he said.

According to retailers and analysts, toy sellers are enjoying strong sales of anything related to some of Hollywood's hot properties like Walt Disney Co.'s "High School Musical" and "Hannah Montana," and the summer hit "Transformers."

Wal-Mart and Toys "R" Us reported strong early sales of Aqua Dots Super Studio, from Spin Master Ltd., an activity set that involves using colored beads. Toy experts said they are also bullish on toys that interact with the Internet like Zizzle LLC's Spotzmaker, which produces colorful buttons that interact with a Web site called www.Spotzgirl.com.

Other key items that are expected to do well are JAKKS-Pacific's Eye-Clops, an electronic magnifier that plugs into a TV, and Red Octane's "Guitar Hero III, Legends of Rock," the latest in a series of video games that allows consumers to hook up guitar peripheral to a game console like the Sony PlayStation, Microsoft Xbox or Nintendo Wii.