U.S. stocks could face more pressure this week unless investors get some relief from worries about Europe, jobs and the toll they might take on the economic recovery.
Reports on retail sales and consumer sentiment, both of which should offer clues on the outlook for spending, are among the week's major economic indicators. Also on tap will be international trade data.
The impact of BP's massive Gulf Coast oil spill on the environment and the energy industry also is likely to stay in focus, with moves to contain the spill so far having failed.
The three major U.S. stock indexes sank on Friday, with the Standard & Poor's 500 index <.SPX> suffering its worst percentage drop since May 20, after a disappointing U.S. jobs report and new concerns that the European debt crisis was spreading.
We're going to take our clues from what's happening in Europe as it seems to be the emotional drain on the market, said Robert Froehlich, senior managing director of The Hartford Mutual Funds in Simsbury, Connecticut.
In a June 3 letter released on Saturday as the second day of a Group of 20 meeting of finance ministers and central bankers got under way, U.S. Treasury Secretary Timothy Geithner told policy-makers of the world's leading developed and emerging economies they can't rely on the debt-burdened U.S. consumer to increase demand for global exports and help boost the world's economy.
The necessary shift toward higher savings in the United States needs to be complemented by stronger domestic demand growth in Japan and the European surplus countries, and sustained growth in private demand, together with a more flexible exchange rate policy, in China, Geithner wrote.
The G20, in a communique released after two days of talks in South Korea ended on Saturday, did not specifically cite the euro zone's debt troubles.
Those countries with serious fiscal challenges need to accelerate the pace of consolidation, the G20 communique said. We welcome the recent announcements by some countries to reduce their deficits in 2010 and strengthen their fiscal frameworks and institutions.
S&P 500 OFF OVER 10 PCT FROM PEAK
Following Friday's sharp sell-off, the S&P 500 is down 12.5 percent from its most recent closing high on April 23. That puts the broad market benchmark firmly in correction territory, which Wall Street defines as a drop of 10 percent or more from a recent peak.
On Friday, the Dow Jones industrial average <.DJI> fell more than 300 points to close below the psychologically important 10,000 mark, while the S&P 500 ended at its lowest level since February, falling below the technical support levels of 1,070 and 1,065, and finishing below the intraday low reached during the May 6 flash crash sell-off.
This means the downtrend from late April is reasserted, said Chris Burba, a short-term market technician at Standard & Poor's in New York.
For the past week, the Dow industrials fell 2 percent, while the S&P 500 slid 2.3 percent and the Nasdaq <.IXIC> lost 1.7 percent.
The CBOE Volatility Index <.VIX> surged as the U.S. stock indexes tumbled on Friday. The VIX, which is Wall Street's favorite measure of investor fear, jumped 20.4 percent to close at 35.48.
Among factors worrying investors on Friday, the U.S. government's report showed weaker-than-expected job growth for May, with a large portion of those being temporary hirings for the U.S. Census.
Overseas, a Hungarian official said the country was at risk of a Greek-style crisis.
It is just another in a line of worries coming out of Europe regarding budget deficits and the ability to control spending, said Michael Sheldon, chief market strategist at RDM Financial in Westport, Connecticut.
The energy sector had started the holiday-shortened week with a sharp drop after yet another failed attempt to halt the oil spill in the Gulf.
By Friday's closing bell, energy shares had lost more ground as BP said it had begun capturing oil spewing from the ruptured Gulf of Mexico well. But tar balls washed ashore in Florida and the pressure mounted on BP to free up cash to take care of the damage.
In another blow, U.S. crude oil futures fell 4.2 percent, or $3.10, to settle on Friday at $71.51 a barrel as the U.S. payrolls data and Europe's bank woes stirred worries about economic recovery and energy demand.
An S&P index of energy shares <.GSPE> slid 3.5 percent on Friday, while Exxon Mobil Corp lost 3.2 percent to end at $59.62. New York-traded shares of BP sank 5.3 percent to $37.16.
LISTENING FOR KA-CHING!
This week, retail sales could be key, Froehlich said.
If we get a strong number, we could reverse everything that was negative with this employment report today.
The Commerce Department's May report on U.S. retail sales, due Friday, is forecast to show an anemic gain of 0.2 percent versus an April increase of 0.4 percent, according to a Reuters poll. Ex-autos, the forecast is for a May gain of just 0.1 percent compared with April's 0.4 percent rise.
However, the Thomson Reuters/University of Michigan's Surveys of Consumers, also due on Friday, is forecast to show a preliminary June reading of consumer sentiment at 74.5 -- up from the final May sentiment reading of 73.6.
This week, a report on the international trade deficit for April, due on Thursday, is forecast to show a trade gap of $41 billion versus a March deficit of $40.42 billion. The March figure was a 15-month high.
The trade data could affect the dollar, which has been rising against the euro. Last week, the euro fell against the dollar on Friday to below $1.20 for the first time in more than four years.
That hurts the outlook for U.S. companies that rely heavily on overseas sales.
Initial jobless claims for the week that ended June 5, also due on Thursday, are forecast to slip. But continuing claims are seen nearly flat, at 4.64 million versus about 4.67 million for the previous week.
(Reporting by Caroline Valetkevitch; Additional reporting by Leah Schnurr; Editing by Jan Paschal)