Stocks set to weigh recession odds

By Jennifer Coogan

NEW YORK (Reuters) - Stocks will face a heavy lineup of economic indicators next week and may come under pressure if any of the datapoints signal that the United States is in or headed into a recession.

The housing market, which is at the center of the economic slowdown, will get particular attention next 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 its earnings on Thursday. Merrill Lynch cut its ratings on Freddie Mac and Fannie Mae (FNM.N) on Friday to "sell" from "neutral," writing that the market is not braced for the companies to report "significant losses" on their fourth-quarter results.

"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."

Other data on tap include several price indexes and growth indicators, which are key to determining whether the Federal Reserve will keep cutting interest rates as it seeks to stimulate the economy. Thursday will bring an updated report on fourth-quarter gross domestic product. And since 2008 is a leap year, February wraps up on Friday with an extra day. The agenda for February 29 is heavy, with reports due on January personal income and spending, the Chicago Purchasing Managers Index for February and the final reading for February on the Reuters/University of Michigan consumer sentiment index.

PPI AND BERNANKE ON THE RADAR

A jump in crude oil futures above $101 a barrel and a higher-than-expected reading on January consumer prices earlier in the week stirred fears that 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 on 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.

Whether the Fed will continue to focus first on stimulating growth may become more clear on Wednesday and Thursday when Chairman Ben Bernanke gives his semiannual testimony to congressional committees on Wednesday and Thursday. 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."

Outside of scheduled releases, investors will tune in for any further developments related to the subprime mortgage fallout.

RETAILERS, AIG AND SUBPRIME TIME

Wall Street will take the pulse of consumer spending with more than a half dozen S&P 500 retailers set to report quarterly results next week.

Upscale department store chain Nordstrom (JWN.N) kicks off the earnings parade on Monday followed by RadioShack Corp (RSH.N), Target Corp (TGT.N), Macy's Inc (M.N), Home Depot Inc (HD.N) and Office Depot Inc (ODP.N), all on Tuesday. Clothing chain Gap Inc (GPS.N) reports earnings on Thursday.

In a sign of the equity market's continued sensitivity

to subprime-related news, the Dow and the S&P 500 erased deep losses and rallied late in the session on Friday on a report that bond insurer Ambac Financial Group Inc (ABK.N) could get a bank bailout by Monday or Tuesday. Ambac is facing billions of dollars of expected losses after insuring bonds liked to subprime debt and other risky assets.