Stocks to weigh recession odds

By Jennifer Coogan

NEW YORK (Reuters) - U.S. stocks face a blitz of economic indicators this week and may come under pressure if any hint the United States is in recession or headed into one.

The housing market, at the center of the economic slowdown, will get particular attention this week. Monday's existing home sales report will be followed by the S&P/Case-Shiller Home Indexes on Tuesday. New home sales are set for release on Wednesday, the same day luxury home builder Toll Brothers Inc (TOL.N) reports quarterly results.

Freddie Mac (FRE.N) is set to release earnings on Thursday. Merrill Lynch cut its stock ratings on Freddie Mac and Fannie Mae (FNM.N) on Friday to "sell" from "neutral," with analyst Kenneth Bruce writing that the market is not braced for the companies to report "significant losses" on their fourth-quarter results. Fannie Mae and Freddie Mac are the two largest sources of financing for U.S. home loans.

"With housing numbers coming out, it's not a good thing in this market, given that they always seem to disappoint," said Owen Fitzpatrick, head of the U.S. Equity Group at Deutsche Bank Private Wealth Management, in New York. "Data just keeps pointing to the economy slowing. I think the market has to adjust expectations about earnings. They're definitely still too high and need to come down."

The median forecast for U.S. existing home sales in January is an annualized rate of 4.80 million units, down from December's 4.89 million units, according to economists polled by Reuters. The report is due on Monday at 10 a.m. EST.

New home sales are seen at an annualized rate of 600,000 units in January, down from December's 604,000, the Reuters poll said. Data is due on Wednesday at 10 a.m. EST.

Other data on tap include several price indexes and growth indicators, which will help determine whether the Federal Reserve will keep cutting interest rates as it seeks to stimulate the economy. Thursday brings an updated report on fourth-quarter gross domestic product.

February wraps up on Friday with an extra day, since this is a leap year. The economic calendar for February 29 is full, with personal income and spending, the Chicago Purchasing Managers Index and the final reading for February on the Reuters/University of Michigan consumer sentiment index.

PPI AND BERNANKE ON THE HILL

A jump in crude oil futures above $101 a barrel and a higher-than-expected reading on January consumer prices last week stirred fears the Fed may be backed into a corner, having to choose between fostering growth or slowing down inflation.

The January reading on the Producer Price Index, set for release on Tuesday, will shed further light on the state of inflation. November and December PPI readings were revised lower on Friday in a recalculation of seasonal adjustments, but unadjusted data showed wholesale prices on a sharp ascending trend, with overall producer prices rising in 2007 year on year by the most since 1981.

Economists polled by Reuters expect that overall PPI rose 0.4 percent for the month of January. They see core PPI, excluding volatile food and energy costs, up 0.2 percent.

Whether the Fed will continue to focus first on stimulating growth may become more clear when Chairman Ben Bernanke gives his semiannual testimony on Capitol Hill. He will appear on Wednesday before the House Financial Services Committee and on Thursday, he goes before the Senate Banking Committee.

Dallas Fed President Richard Fisher said on Friday that policy-makers were faced with a "dilemma" of creating conditions for employment growth without stirring "the embers of inflation."

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