UPDATE 1-Wall St Wk Ahead: More volatility seen with hurricane

(Updates with latest Hurricane Gustav movement, oil price)

By Deepa Seetharaman

NEW YORK, Sept 1 (Reuters) - Wall Street is set for another volatile week after the Labor Day holiday, as investors track Hurricane Gustav, the price of oil, key economic data and continued fallout from the credit crisis.

Gustav initially came roaring into the Gulf of Mexico threatening to cause the worst devastation since Hurricane Katrina three years ago, but it weakened on Monday before making landfall in Louisiana.

Oil prices plummeted on the news of the less powerful storm in a turn of events that will likely lift U.S. stock indexes when they reopen after the U.S. Labor Day holiday on Tuesday.

"You might actually get some relief in the markets," said Chip Hanlon, president of Delta Global Advisors, Inc, in Huntington Beach, California. "We were bracing for a repeat of Katrina, Category 2 sounds tame in comparison."

Hanlon said retailers and airline stocks may "get a bounce" on Tuesday from lower oil prices, but energy-related stocks may be weak.

Oil fell 4.6 percent and dropped below $111 a barrel in electronic trading on Monday as the threat to U.S. oil production faded. Stock investors are increasingly sensitive to inflation pressures, making the price of oil an important factor in trading.

Investors will also contend with a barrage of economic data this week, notably the August payrolls report due out on Friday and two reports on U.S. factory activity from the Institute for Supply Management.

But the hurricane will be the main focus early in the week. Last week, oil prices surged and retreated on concerns over the storm's path, strength and the readiness of U.S. emergency officials to handle any disruptions.

Gustav "will probably be moving the market one way or the other," said John Praveen, chief investment strategist at Prudential International Investments Advisers LLC in Newark, New Jersey. "If it fizzles then it will be a big relief on oil prices."

Also driving the market this week are several government economic reports.

This data comes after the U.S. government said gross domestic product grew at a robust 3.3 percent clip between April and June, above initial estimates of 1.9 percent.

But analysts said the strong showing was largely the result of increased exports.

"If you look at GDP, you're led to believe the economy is solid," said Hugh Johnson, chief investment officer of Johnson Illington Advisor in Albany, New York. "But if you look at the variables -- employment, industrial production and personal income -- the economy does not look solid but weak."

On Friday, all three major indexes fell more than 1 percent and all 30 stocks in the Dow industrials finished in the red.