U.S. investors hang on Europe after bruising week

NEW YORK (MarketWatch) � After the worst week of the year for U.S. stocks, investors will be looking for signs of whether the U.S. economy can continue to recover in the face of ongoing uncertainty about Greece, Spain and global growth prospects.

U.S. reports on key sectors of the economy could influence sentiment, though bigger risks revolve around whether Europe can stabilize its banking system and restore confidence among its citizens.

Click to Play Europe's week ahead: G-8 react

European leaders will look at the outcome of this weekend's G-8 summit at Camp David, euro-zone manufacturing data will show the strength of the region's economy and Marks and Spencer announce their latest earnings.

As for U.S. equities, �we�re headed lower,� said Barry Knapp, head of U.S. equity strategy at Barclays Capital. �I don�t see any way to resolve the broader global growth concerns and public policy uncertainty both here and in Europe.�

Corporate earnings haven�t been strong enough to overcome the macro-economic problems, and the options of monetary policymakers looks hampered, at least for a couple months, he said.

Companies reporting results in the coming week include tech giants Dell Inc. DELL �and Hewlett-Packard Co. HPQ , retailers Tiffany & Co. TIF �and Urban Outfitters Inc. URBN �and homebuilder Toll Brothers Inc. TOL �

Data on April sales of existing U.S. homes on Tuesday and new-home sales Wednesday will be signs whether the housing market is really getting better, Knapp said.

�I don�t buy it,� he said. �We�re bottoming, but it will be a long, drawn-out bottom.�

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Also, orders for durable goods in April will be reported Thursday, and will be the first look at second-quarter capital expenditures after a weak first quarter, Knapp said. Anecdotes �imply cap ex is not likely to rebound much in the second quarter,� he said.

Among those, he pointed to a warning last week from Cisco Systems Inc. CSCO �chief executive John Chambers of a �cautious IT spending environment.� See recent story on Cisco�s outlook.

Knapp noted that capital spending tends to be weak in election years because of public policy uncertainty.

But beyond U.S. shores, Europe will be on the front page � in all likelihood continuing to rock markets as policy makers struggle to tackle a lack of confidence in the banks of some countries, a lack of leadership in Greece and a growing backlash to austerity. All that�s making countries with the money more reticent to bailout those that need it.

�There�s no easy solution,� Knapp said. �They need to shore up their banking system. While Greece is not likely to leave the euro zone in the very near term, it�s seemingly becoming increasingly inevitable� � which would make it more important to boost capital and liquidity in the banking system.

Credit Suisse analysts raised their own prediction on whether Greece will exit the euro, to 15% from 5%. That�s also made the firm trim their year-end target for the S&P 500 Index SPX �to 1,450 from 1,470.