U.S. investors came to the Thanksgiving holiday table on Thursday mostly thankful that the week was a short one because, otherwise, market losses could have been larger.

As another round of bond auctions in Europe begins next week, traders will closely watch the sovereign bond yields that have kept markets on edge.

Yields rose in almost every Eurozone country this week, and even Germany failed to find enough bids for a 10-year auction. The S&P 500 index reacted by posting a second straight week of declines and its worst week in two months.

Politicians are scrambling to find a way out of a two-year-old sovereign debt crisis in the Eurozone and a visit to Washington from top European Union officials, as well as a meeting of Eurozone finance ministers, will provide the market with headlines and possibly add to uncertainty.

With the specter of rising yields casting a long shadow, Spain, Italy, France, Britain, and Belgium are holding debt sales next week. The direction of bond yields will determine the direction of equity markets.

Politicians are trying to buy themselves time so austerity measures kick in and impact budgets and deficits and markets become more forgiving and rates come down, said Wasif Latif, vice president of equity investments at the San Antonio, Texas-based USAA Investment Management, which manages about $45 billion.

The credit market and fixed income are a little bit more in the eye of storm; that's where the issue is rising, so equities are more reactionary, he said. You may continue to see more of the same.

Investors have worried about rising borrowing costs in many Eurozone nations, but Italy, the third-largest Eurozone economy, has grabbed most of the focus. On Friday, Rome paid a record 6.5 percent to borrow for six months and almost 8 percent to issue two-year zero coupon bonds.

Many market participants have said that the sharply differentiated risk-on and -off trades that the Eurozone crisis has generated has seen equities being sold as an asset class, with little or no difference between strong and week balance sheets and earnings reports. But a wedge has opened at least from a global perspective, as data show stocks of companies with more exposure to Europe are underperforming.

Politics to Drive the Week

U.S. President Barack Obama will meet on Monday with European Council President Herman van Rompuy and European Commission President Jose Manuel Barroso, and Europe's response to the two-year sovereign debt crisis is expected to top the agenda.

The only thing that will come out of that is speculation, said Todd Salamone, vice president of research at Schaeffer's Investment Research in Cincinnati, referring to the meeting in Washington.

It will come down to the U.S. trying to convince European leaders to get something in place to solve this crisis.

Not many hopes are set either on Tuesday's meeting where Eurozone finance ministers are expected to agree on how to further strengthen the region's bailout fund.

On Thursday, European Central Bank President Mario Draghi presents the bank's annual report to the European parliament.

As the latest reminder from markets to politicians that they are running out of time, Belgium's credit rating was downgraded by Standard & Poor's.

If Europe Allows, Data Will be Key

Some of the most important U.S. economic monthly data will be released next week, but will it be enough to unlink the stock market's behavior and European yields?

New-home sales and the S&P/Case-Shiller home prices index will start the week showing whether the housing market continues to function on life support. Data on confidence among consumers, who flooded U.S. stores on Friday as the holiday shopping season started, will be released on Tuesday.

The Institute for Supply Management's manufacturing report is due, with investors not only looking at the U.S. number on Wednesday but also factory readings from Europe and China on Thursday.

By midweek, labor data takes over with the private-sector employment report from Automatic Data Processing Inc. and the job-cut report from Challenger, Gray & Christmas Inc. on Wednesday, the weekly jobless-claims numbers on Thursday, and the monthly nonfarm payrolls report on Friday.

It would be a little bit refreshing to focus on the U.S. data for a change, said Brian Lazorishak, senior quantitative analyst and portfolio manager at Chase Investment Counsel in Charlottesville, Va.

He said if European headlines allow it, the focus will be in the labor market where most people are looking for modest improvement.

(Reporting by Rodrigo Campos; additional reporting by Edward Krudy; Editing by Kenneth Barry)