Without further signs of life in the lackluster economy or hints from the Federal Reserve the outlook is improving, stocks' three-month rally may run into more obstacles next week.

Investors will assess data on new and existing home sales that could point to whether the battered housing sector has bottomed. They will also keep an eye out for profit forecasts or warnings as the second quarter draws to a close.

The kamikazes who ran the market up three months ago have now paused ... I'm in a situation where I say, 'prove it to me.' I want to see a trend where it really is a little bit better, said Cummins Catherwood, managing director at Boenning and Scattergood in West Conshohocken, Pennsylvania.

The Fed is widely expected to leave rates unchanged after its two-day meeting ends Wednesday, but investors will closely check its statement for clues on the central bank's economic outlook.

All three major U.S. stock indexes ended the week lower, with weaker-than-expected regional manufacturing data on Monday giving the week a negative tone from the start. The Dow Jones industrial average <.DJI> fell 3 percent, while the Standard & Poor's 500 <.SPX> index lost 2.7 percent and the Nasdaq <.IXIC> dropped 1.7 percent.

The benchmark S&P 500 has gained 36 percent since hitting a 12-year closing low in early March, but investors have been eager for signs that early hopes of an economic recovery aren't false.

I do think now that we're up here, and we're priced for some good news, it's going to be important we have some follow-through, said Frank Lesh, futures analyst and broker at FuturePath Trading LLC in Chicago.

Some other data next week that could shed some light on the economic outlook will include durable goods orders, personal income and spending data, and weekly jobless claims.

FED AND EARNINGS WATCH

While expectations are that the Fed will keep rates steady next week, the question is: How long will the Fed keep rates near historic low levels? The Fed's last decision on rates was in December, when it cut the benchmark fed funds rate to almost zero from 1 percent.

They will probably have to send a clear, credible signal that rates are not going to be raised in 2009 or even in the first half of 2010, said John Praveen, chief investment strategist at Prudential International Investments Advisers LLC in Newark, New Jersey.

In the coming week, Federal Reserve Chairman Ben Bernanke is scheduled to testify on Thursday at a congressional committee hearing on the Bank of America-Merrill Lynch merger. This week, Representative Edolphus Ed Towns, a Democrat from New York, issued a second subpoena on Friday to the Fed seeking more documents, dating from last September through January, on the closed-door merger talks.

With the second quarter ending June 30, investors may see some pre-announcements from companies that could provide a better picture of how the corporate reporting period will look. Outlooks for the third quarter also will be crucial.

U.S. corporate earnings, a major influence for the stock market, have been slow to recover since the recession. Data compiled by Thomson Reuters shows a decline in second-quarter earnings of 34.4 percent from a year ago.

What's going to drive the market is the third-quarter outlook when companies report second-quarter earnings, said Jim Awad, chairman of W.P. Stewart & Co. Ltd. in New York.

Michael Hartnett, a strategist who spoke at Reuters Investment Outlook Summit in New York this week, said companies' top-line growth is going to be crucial for the coming earnings season and the stock market.

If there's little evidence of top-line growth, the market will take that as a sign there's not much of an economic recovery, said Hartnett, chief global equity strategist for Banc of America Merrill Lynch.

The earnings period typically kicks off with results from aluminum producer Alcoa Inc , which is scheduled to report on July 7.

HOUSING, DURABLES AND DEBT

The U.S. Treasury's $104 billion worth of bond auctions next week could also keep stock investors on edge. Worries about supply have weighed on the U.S. government bond market, with $2 trillion worth of new debt expected to be issued this year.

Stock investors have been worried about the rise in bond yields, which could signal higher borrowing costs for businesses and consumers. Yields rise as bond prices fall.

Existing home sales are expected on Tuesday and new home sales are due the following day.

If the housing numbers are good, the (stock) market will rally. There is definitely this view that housing led us down, and it might lead us back out, said Janna Sampson, co-chief investment officer at OakBrook Investments LLC in Lisle, Illinois.

Other economic data next week includes a report on durable goods orders for May on Wednesday and data on the final U.S. first-quarter reading on gross domestic product on Thursday along with weekly jobless claims. On Friday, May personal income and spending figures will be released, followed by the final reading for June from the Reuters/University of Michigan consumer sentiment index.

(Wall St Week Ahead runs weekly. Questions or comments on this column can be e-mailed to: caroline.valetkevitch(at)thomsonreuters.com)

(Reporting by Caroline Valetkevitch; Additional reporting by Rodrigo Campos and Leah Schnurr; Editing by Jan Paschal)

New Jersey Pennsylvania Ben Bernanke