Stock investors will keep a close eye on Europe this week, looking for signs the debt crisis may be stabilizing, while industrial production, housing starts and inflation data may offer more clues on the U.S. economic outlook.
On Friday, an official said the European Union has reached agreement with Greece on how to move forward with pension reform, while Spain's economy ministry said it has not made and will not make a request for economic aid from the EU.
Market sentiment has been plagued for weeks by worries that European debt problems, including those in Greece, Spain and Hungary, could affect the global economy.
The Standard & Poor's 500 index <.SPX> is now down 10.3 percent from its April 23 closing high for the year, and considered in correction territory.
We've gone through a period of extreme nervousness ... and problems haven't gone away, but I think right now, global investors are little less jittery, said Fred Dickson, chief market strategist at D.A. Davidson & Co in Lake Oswego, Oregon.
The Chicago Board Options Exchange's Volatility Index <.VIX> or VIX, a measure of Wall Street's anxiety, slid 5.82 percent to end at 28.79 on Friday after rising more than 20 percent a week ago.
The three major U.S. stock indexes finished with gains for the week, with the Dow Jones industrial average <.DJI> up 2.8 percent, the S&P 500 up 2.5 percent and the Nasdaq Composite Index <.IXIC> up 1.1 percent.
I will be looking to see if the euro holds gains that we saw in the last couple of days, Dickson said.
The euro fell against the dollar on Friday. But that was its first daily decline since Monday, when it hit $1.1876 -- its lowest level since 2006.
HOUSING STARTS, PPI AND CPI
Wall Street will keep a weather eye this week on the recovery in the U.S. housing sector, still deemed fragile with the expiration of a federal tax credit for home buyers.
U.S. housing starts and building permits for May will be released on Wednesday. Economists polled by Reuters forecast that housing starts will slip to an annual pace of 650,000 units in May from April's pace of 672,000 units.
Analysts said, however, that much of the week's economic news could be less troubling for the market.
I think the take-away for investors will be that the economy continues to expand, albeit at a very slow pace and inflation remains very benign, said Hugh Johnson, chief investment officer at Johnson Illington Advisors in Albany, New York.
The data could show that the concerns should be about deflation, not inflation, he said.
Both the Producer Price Index and the Consumer Price Index for May are expected from the U.S. government next week.
The overall PPI for May, also due on Wednesday, is forecast to fall 0.5 percent, compared with a 0.1 percent dip in April. Core PPI, excluding volatile food and energy prices, is forecast to edge up 0.1 percent in May, compared with a gain of 0.2 percent in April.
Wednesday's data menu will include industrial production, which is forecast to rise 0.9 percent for May, compared with a gain of 0.8 percent in April.
The overall CPI for May, due on Thursday, is seen down 0.2 percent, compared with a 0.1 percent drop in April. Core CPI for May is forecast to rise just 0.1 percent, following no change in April.
EXERCISE YOUR OPTIONS
One high-profile item on Wall Street's agenda will be the initial public offering of the CBOE , North America's last independent major financial exchange. The IPO is expected to be priced on Monday evening, with the stock set to start trading on Tuesday. For details, see [nN11109696]
Investors will pay close attention on Wednesday when Federal Reserve Chairman Ben Bernanke speaks on financial reform.
Stocks got a boost last week after Bernanke said the economic recovery appeared to be on solid footing and he expects the economy to keep growing.
Only a handful of Standard & Poor's 500 companies are scheduled to report financial results this week. Among them are Best Buy Co and FedEx Corp.
This Friday marks the so-called quadruple witching period, a term used by professional traders for the quarterly settlement and expiration of four different types of June equity futures and options contracts.
The event, which starts on Thursday, can lead to greater volume and volatility as players adjust or exercise their derivative positions.
An early look at the soon-to-expire June open interest on the S&P 500 indicates a potential pinning at the 1,100 strike price, said Scott Fullman, director of derivative investment strategy at broker-dealer WJB Capital Group, in New York.
(Reporting by Caroline Valetkevitch; Additional reporting by Doris Frankel; Editing by Jan Paschal)