Bernanke, Europe hold key to rally

New York: Wall Street hopes for more Fed action and clear signs European leaders will follow through on their new urgency to tackle the Eurozone debt crisis if US stocks are to build on their best week since early July.

Investors expect the Federal Reserve to take steps to pull down long-term interest rates when policymakers meet on Tuesday and Wednesday to help revive the persistently weak US economy.

Fed Chairman Ben Bernanke, speaking in Jackson Hole, Wyoming, on August 26, said the Fed's Open Market Committee would meet for two days in September instead of the scheduled one day to discuss ways to boost the recovery.

But even with expectations of more intervention to boost the economy, investors will keep a close eye on developments in Europe.

Any lack of progress or backsliding on efforts to get the currency bloc's fiscal house in order will renew worries the crisis could seriously damage the world financial system and major economies.

"The Fed is really going to dominate next week," said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont.

"But the market has been trying to work its way higher here, trying to feel if maybe the European thing won't cascade out of control."

US Treasury Secretary Timothy Geithner, at a meeting of Eurozone fin-ance ministers in Poland on Friday, urged them to leverage their bailout fund to better tackle the debt crisis, but there was no agreement on what steps to take.

While the Standard & Poor's 500 has been moving upward over the past week, the benchmark index has been stuck in roughly a 100-point range over the last six weeks.

Consolidation phase

It is likely to run into resistance near the 50-day moving average of about 1,228, with analysts also pointing to the 1,250 level as the next significant hurdle.

"This is really a consolidation phase, which is normal after the kind of early Aug-ust swoon that we had. So far this trading range is developing in a very positive and healthy way," said Gail Dudack, chief investment strategist at Dudack Research Group in New York.

"Longer term, the market is looking better but we are getting very close to that resistance at 1,250 which would be pretty surprising if we can break above that at this early juncture. It could take a little more time, people shouldn't be disappointed."

The week's economic calendar includes reports on the beleaguered housing market along with weekly initial jobless benefits claims.

Housing "is dead and it will stay dead, and I don't expect anything out of unemployment either," said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey. "The biggest event is Bernanke."

Companies due to post earnings this week include homebuilder Lennar Corp, Nike, General Mills as well as technology companies Adobe Systems, Red Hat and Oracle.

FedEx, the number two US package delivery company, which is seen as a proxy for how the economy is performing, is also scheduled to report quarterly results.