Stocks' latest rally may trip on harsh data

NEW YORK (Reuters) - Extending Friday's rally into next week is a tall order for U.S. stocks, given more data set to show the job market and retail sector are in deep distress and little hope for a respite from dismal corporate outlooks.

Uncertainty about the fate of ailing U.S. automakers is another big wild card. U.S. lawmakers could start debate on whether and how to rescue GM, Ford and Chrysler as early as Monday, with no clear visibility on a likely outcome.

More headwinds are due late in the week from a spate of key economic reports.

On Thursday, the U.S. Labor Department is likely to say first-time claims for unemployment benefits held above the 500,000 level for a fourth straight week. Then on Friday, the Commerce Department is expected to report that retail sales fell in November for the fifth month in a row, the longest streak of monthly declines since the government started tracking the data in 1992.

"There's no place to hide," said Eric Kuby, chief investment officer, North Star Investment Management Corp in Chicago. "It's clear that the economy is really soft for the next few months at least. The news will continue to be bad and everyone knows that."

Wall Street ended on a decidedly upbeat note on Friday, but major U.S. indexes still fell for the week, amid a slew of negative economic data that underscored fears that the economic malaise has reached nearly every sector.

For the week, the Dow Jones industrial average slid 2.2 percent, while the Standard & Poor's 500 dropped 2.3 percent and the Nasdaq Composite Index shed 1.7 percent.

With just a few weeks left in the year, the Dow is down 34.9 percent for 2008, while the S&P 500 is off 40.3 percent and the Nasdaq is down 43 percent.

THROW OUT THE CRYSTAL BALL

A host of U.S. companies trimmed their financial outlooks this week, including blue-chip drugmaker Merck & Co Inc and chemical maker DuPont . Analysts expect there will be more to come.

"I keep hearing conference call after conference call -- we can't provide any more forecasts," Kuby said. "You're going to hear more of them say it's worse than we thought or we can't stick by our guidance anymore."

Not even a Detroit bailout may provide the ammunition for a sustainable rally, analysts said.

"Ultimately, it is likely there will be some kind of package," said Doug Roberts, chief investment strategist at Channel Capital Research in Shrewsbury, New Jersey. But, at best, the measure would be a "Band-Aid."

Only a handful of S&P 500 companies are expected to post earnings next week, including tax-preparation firm H&R Block Inc and National Semiconductor Corp .

JOBLESS CLAIMS, CONSUMERS AND PPI

Toward the end of the week, economic data will take center stage, with a spotlight on November retail figures and weekly jobless claims.

Other economic indicators include the Michigan consumer sentiment index and the Producer Price Index reported by the Labor Department. Producer prices are typically volatile, but broad-based declines in commodity prices suggest significant weaknesses in months ahead.

Few expect the results to be heartening, although after Wall Street shrugged off Friday's dismal employment report, some are starting to sense that the market is beginning to etch out a bottom.

"The market has this horrible news this morning, it didn't collapse," Kuby said.

Jobless claims will gain "extra significance," said Joe Kinahan, chief derivatives strategist at online brokerage

thinkorswim Group in Chicago, because of the dive in November employment reported on Friday morning.

The total reduction in U.S. nonfarm payrolls for the last year was nearly 1.3 million, with almost 2 million jobs shed so far this year.

Roberts of Channel Capital Research said Wall Street is riveted by the stream of data on job losses.

"With employment, there's so many announcements. That's what people are factoring in more than anything else," Roberts said. "They're asking, 'How far is the ripple across the economy?'"

(Additional reporting by Doris Frankel; Editing by Jan Paschal)

(The Wall St Week Ahead column appears every week. Comments or questions on this one can be e-mailed to: deepa.seetharaman(at)reuters.com)