Wall Street's attempt to recover further from 12-year lows faces its biggest test yet this week in the Treasury's long-delayed bank rescue plan.
Details of the Treasury Department's much delayed plan to sop up banks' toxic assets are expected early in the week, ahead of a key G20 meeting in early April.
There needs to be a well-designed and credible plan so that this problem is fixed, said John Praveen, chief investment strategist at Prudential International Investments Advisers LLC in Newark, New Jersey.
Analysts herald the toxic-asset plan as integral to jolting the recession-hit economy at a time when unemployment and jobless claims notch multiyear highs.
The weakness of the economy will likely be highlighted by reams of economic data, including sales of new and existing homes, a final reading on fourth-quarter gross domestic product and weekly jobless claims.
Indications on the consumer's state of mind may come from quarterly results from closely watched names such as electronics retailer Best Buy Co
Still, the bank plan more than any other factor probably will be in the forefront of investors' minds.
Pretty much everything else is going to be background noise to the core issue: confidence in banks, said Eric Kuby, chief investment officer for North Star Investment Management Corp, in Chicago.
ALL ABOUT BANKS
Stocks rose last week, emboldened by news that the Federal Reserve would take bold steps to expand its balance sheet and purchase mortgage-backed securities. Still the Fed move underscored the extent of the economy's weakness and worries over unintended consequences of the central bank's decision, which spurred a sell-off late in the week.
For the week, the Dow gained 0.75 percent and the S&P 500 added 1.58 percent, while the Nasdaq climbed 1.80 percent.
Next up in the aggressive campaign to resuscitate the economy is the toxic-asset plan, known as the Public Private Investment Fund, or PPIF -- first proposed last month in only very broad terms by U.S. Treasury Secretary Timothy Geithner.
Some government officials have said the plan could be modeled on the Fed's $200-billion Term Asset-Backed Securities Loan Facility, known as TALF.
But the lackluster reception of the first TALF auction on Thursday suggests there will be challenges for the bank recovery plan. Additionally, lobbyists said the drama over bonuses for workers at American International Group
Funding for the bank plan and the pricing of those bad assets are key issues that investors will be keen to get more details on, Praveen said.
A disappointing plan could set the stage for a sharp, swift slide in the stock market, but a well-designed one could serve as a catalyst for further gains.
Two things have really roiled the market place throughout the cycle -- the lack of clarity at the policy-maker level and the pattern of the rules changing in the middle of the game, said Craig Peckham, equity trading strategist at Jefferies & Company in New York.
If we can assuage those concerns with the 'bad bank-good bank' plan, that will help.
CHECKING THE CONSUMER'S PULSE
Friday's reports on March consumer sentiment and February personal income, as well as earnings from companies like Walgreen
By and large, things are getting less bad overall, Peckham said. Dare I say it? We're starting to scratch the bottom of consumer spending.
But obstacles could come from Wednesday's data on February durable goods orders and the final reading on fourth-quarter gross domestic product on Thursday.
Last month's preliminary reading showed the economy contracted at an annual rate of 6.2 percent in the final three months of 2008.
Economists polled by Reuters on average expect the final reading on fourth-quarter GDP to show a drop of 6.5 percent, but some estimates call for a decline of 6.9 percent.
A downward revision might give some negative sentiment that things are even much worse than what we were looking for, Praveen said.
But a positive revision might give a little bit of a relief.
(Wall St Week Ahead runs weekly. Questions or comments on this one can be e-mailed to: deepa.seetharaman(at)thomsonreuters.com)
(Additional reporting by Edward Krudy and Leah Schnurr; Editing by Jan Paschal)