NEW YORK (Reuters) –

Wall Street may extend its recovery

push next week as investors bet that a further drop in oil

prices will restrain inflation and boost prospects for profit

growth.

The precipitous slide, fueled in part by a recovery in the

U.S. dollar, has now taken oil prices to around $115 a barrel

— or more than 20 percent below a record set July 11.

A slide in energy prices is a welcome boost in an economy

hamstrung by the housing slump and mounting mortgage losses in

the financial services sector.

In the near term, consumers and business should feel some

respite as energy costs recede, boosting prospects for a range

of market constituents, including airlines, retail, industrial

and technology sectors.

Financials are also a major beneficiary as investors shift

money out of energy stocks in search for bargains elsewhere.

“I think the trend in stocks is up. I do feel that July 15

represented the bottom for stocks and we are going to move

higher,” said Bruce Zaro, chief technical strategist at Delta

Global Advisors in Boston.

“I really feel that what investors are looking for right

here is signs that the economy is starting to pick up right

now.”

And as the latest earnings reporting season is fast winding

down, investors will have plenty of economic reports to watch

next week.

In addition to keeping tabs on oil prices, investors will

seek further direction from what will perhaps be the week’s

highlight — Thursday’s release of the July Consumer Price

Index, a major gauge of inflation at the consumer level.

Economists polled by Reuters expect the overall CPI to rise

0.4 percent in July, compared with June’s gain of 1.1 percent.

Core CPI, excluding volatile food and energy prices, is

forecast to rise 0.2 percent in July vs. June’s gain of 0.3

percent.

But before the CPI report, investors will pore over

government data on the international trade deficit for June on

Tuesday, followed the next day by July reports on retail sales

and import prices, and June business inventories. Friday’s

economic agenda will bring July data on industrial output and

capacity utilization, as well as the preliminary reading for

August on consumer sentiment from the Reuters/University of

Michigan Surveys of Consumers. For the full economic diary, see

On the earnings front, a slew of retailers, including

Wal-Mart Stores Inc (WMT.N), will help investors assess how

much strain consumers face as home values slide and the squeeze

from soaring food and energy costs takes its toll. For the full

earnings diary see,

BEST WEEK IN OVER 3 MONTHS

“It looks like we are finally getting the break we’ve been

waiting for in terms of slowing down the inflation spiral that

has been taking place,” said Paul Mendelsohn, chief investment

strategist at Windham Financial Services in Charlotte, Vermont.

“You have a tremendous rise in the dollar, and that’s

putting pressure on crude oil, which is helping to buoy U.S.

equity markets.”

U.S. stocks soared on Friday, capping a volatile week with

their best weekly showing in more than three months.

On Friday, the Dow Jones industrial average (.DJI) surged

302.89 points, or 2.65 percent, to end at 11,734.32. The

Standard & Poor’s 500 Index (.SPX) shot up 30.25 points, or

2.39 percent, to 1,296.32. The Nasdaq Composite Index climbed

58.37 points, or 2.48 percent, to 2,414.10.

U.S. front-month crude oil settled on Friday at

$115.20 a barrel, down $4.82 for the day on the New York

Mercantile Exchange. In post-settlement trading, crude tumbled

more than $5 to $114.62 a barrel — more than 20 percent below

its NYMEX record high above $147 set in July.

For the week, the Dow average rose 3.6 percent, the S&P 500

gained 2.9 percent and the Nasdaq climbed 4.5 percent. It was

the best week for all three indexes since April 20.

FEWER JOBS, HIGHER PRICES

But even with the likelihood that stocks may extend their

recovery push next week, Wall Street will still have plenty

of reasons to tread lightly, particularly with recent signs

pointing to further deterioration in the job market.

“Clearly, the economy is still weak. Some of the stimulus

from the tax rebates is” ebbing, said Subodh Kumar, chief

investment strategist at Subodh Kumar & Associates in Toronto.

“I think the key to watch for is the unemployment number. Once

you go above 6 percent, the concerns about recession will go

up.”

For July, the U.S. unemployment rate hit 5.7 percent — its

highest level in four years as employers cut jobs for a seventh

straight month, according to the Labor Department’s monthly

payrolls report released a week ago.

Echoing worries about the economy’s health, Alan Haft,

president of Haft Financial, in Newport Beach, California, said

that although oil prices may be sliding, inflation remained a

threat, more so because the dollar’s rebound will probably be

short-lived.

“Look at the prices of food around the world. It’s unfair

to look at just the price of oil as the leading indicator of

where inflation trends may be,” Haft said. “There’s strong

likelihood that the Fed is going to have to start to raise

interest rates to control inflation.

“For a long-term investor, I’d advocate slowly going back

into commodities right now. Gold will be my favorite

recommendation.”

The agenda of U.S. Federal Reserve officials’ public

appearances happens to be thin. Federal Reserve Bank of

Minneapolis President Gary Stern scheduled to speak about

finance at an event on Thursday in Montana. Federal Reserve

Bank of Chicago President Charles Evans will speak about the

economic outlook on Friday. For a full Fed diary, see

(Wall St Week Ahead runs weekly. Questions or comments on

this one can be e-mailed to: [email protected])

(Additional reporting by Walter Brandimarte; Editing by Jan

Paschal)