RPT-Wall St Week Ahead: Earnings to set tone for stocks

(Repeating column initially transmitted late on Thursday)

By Leah Schnurr

NEW YORK, July 5 (Reuters) - With Wall Street stuck in a range since May, the start of second-quarter earnings season this week could prove to be a decisive factor for determining how much faith investors should have in an economic recovery.

After a rally of as much as 40 percent for the S&P 500 on expectations the economy will begin to turn around by year's end, analysts will hone in on companies' projections to see if their hopes are corroborated.

The light menu of economic data will help keep the spotlight on earnings releases, with bellwethers Alcoa (AA.N) and Chevron (CVX.N) posting quarterly scorecards. Of even more importance will be any outlook that companies give for what they expect to see for the rest of the year.

A large U.S. Treasury auction could buoy the market if it shows there is good demand for government debt. Concern that the appetite for debt is waning as the government tries to fund its stimulus efforts was soothed by solid demand in the recent record $104 billion auction of Treasury securities.

"I think we are range bound and we're going to stay there for a while," said Paul Nolte, director of investments at Hinsdale Associates, in Hinsdale, Illinois.

"What will probably break it is going to be the earnings season because the expectation is for at least some rebound in earnings, especially from the banking sector."

Last week, stocks fell: The Dow Jones industrial average .DJI declined 1.9 percent, while the Standard & Poor's 500 Index .SPX lost 2.5 percent and the Nasdaq .IXIC fell 2.3 percent.

U.S. financial markets were closed on Friday for the long U.S. Independence Day holiday weekend because July 4th falls on a Saturday this year. Trading will resume on Monday.

WHEN 'LESS UGLY' LOOKS GOOD

Investors will be looking for companies to release results that are "less bad" in the same way that recent economic data has spurred optimism that the worst is over.

Analysts say companies should be able to beat the relatively low bar that has been set by expectations, which could help the market add some gains.

Earnings for S&P 500 companies are expected to decline 35.5 percent in the second quarter, according to Thomson Reuters data. While all 10 sectors are anticipated to fall, healthcare should fare the best, slipping just 2 percent.

On the opposite side, the materials and energy sectors are forecast to do the worst, falling 78.9 percent and 64.7 percent, respectively.

"On the earnings front, it's going to be ugly reading, but it's just going to be less bad, just like the economic data," said Scott Marcouiller, senior equity market strategist at Wells Fargo Advisors in St. Louis.