RPT-Wall St Week Ahead: Rally's fate up to shoppers, Fed

(Repeats column initially sent late Friday)

By Leah Schnurr

NEW YORK, Aug 9 (Reuters) - Wall Street's rally could persist this week as investors' conviction grows that the U.S. economy is on track for a recovery. But retailers' results, CPI and other consumer data could cast a pall if shoppers fail to show signs of life.

The focus will also be on the Federal Reserve, which will release a statement on Wednesday afternoon at the end of its two-day interest rate-setting meeting. The U.S. central bank is expected to hold rates near zero, so investors will look for signals of an exit strategy from its efforts to prop up the financial system.

The government's July retail sales data as well as quarterly scorecards from major retailers, including Wal-Mart Stores Inc (WMT.N), J.C. Penney (JCP.N) and Macy's (M.N), will give a snapshot of the industry and how consumer spending is faring in the recession. So far, consumers have tightened their belts and shopped mostly for just the bare necessities as worries about job security take precedence.

Encouraging U.S. manufacturing and employment data last week pushed all three major stock indexes to nine- and 10-month highs. And analysts said the enthusiasm from the better-than-expected reports should carry over into this week.

The broad Standard & Poor's 500 is up 49.4 percent from the 12-year closing low of early March after vaulting above the key 1,000 level this week.

Both the Dow and the S&P 500 finished Friday's session at 2009 closing highs. Also last week, the Nasdaq rose back above the 2,000 milestone to end on Tuesday at 2,011.31 -- its highest close for 2009.

At Friday's close, all three major U.S. stock indexes had scored a fourth straight week of gains. For the week, the Dow Jones industrial average .DJI rose 2.2 percent, while the S&P 500 added 2.3 percent and the Nasdaq Composite Index .IXIC advanced 1.1 percent.

For the year, the S&P 500 is up 11.9 percent.

The blue-chip Dow average is up 6.8 percent in 2009, while the Nasdaq is up 26.8 percent.

"All the fundamentals for recovery are now aligned," said Steve Hagenbuckle, managing principal of TerraCap Partners, based in New York. He expects stocks to climb next week.

The non-farm payrolls report on Friday, in particular, boosted confidence after it showed the economy shed far fewer jobs than expected in July. While the job losses were still hefty -- 247,000 jobs disappeared last month -- the data provided the clearest signal yet that the economy was turning around.

Although last week's data offered more evidence that some of the pillars of the economy are stabilizing at a better-than-expected rate, the recovery will still be a long process.

SHOPPERS ON CENTER STAGE

Analysts said the next point of focus for economic stabilization will be the consumer, whose spending accounts for about two-thirds of the U.S. economy.