Before then, however, bond insurers, most notably MBIA's MBIA Insurance Corp and Ambac Financial Group's Ambac Assurance Corp, will likely be central to the market's direction, analysts said.
The two are on the hook for billions of dollars after guaranteeing repackaged subprime mortgages and other risky debt that have now soured. Deutsche Bank Chief Executive Josef Ackermann, for one, has warned that the bond insurers' difficulties could lead to the next financial crisis.
"If the bond insurers can raise capital and avoid (credit) ratings downgrades, then the market will be very relieved. But if things go wrong and there is a downgrade, there will probably be another round of selling," said John Praveen, chief investment strategist at Prudential International Investments Advisers LLC in Newark, New Jersey.
In midweek, the attention could shift to China, analysts said, and the prospect of a China-led sell-off after a prolonged holiday rings familiar. Just a year ago, Chinese investors triggered a global equity rout on just their second day back from the New Year break.
"I have a feeling that China is going to have an impact and a negative one. I think there will be more liquidation in Asia and that will spill over into the Western market," said Michael Metz, chief investment strategist at Oppenheimer & Co. in New York.
The tug of war between traders who have been lured back into the market by relatively cheap valuations after a tough start to the year and those who believe more credit-related risk lies ahead will likely continue next week, Metz added.
On Friday, the Dow Jones industrial average fell 64.87 points, or 0.53 percent, to end at 12,182.13. The Standard & Poor's 500 Index was down 5.62 points, or 0.42 percent, at 1,331.29. The NasdaqIndex was up 11.82 points, or 0.52 percent, at 2,304.85.
The Dow lost 4.4 percent for the week while the S&P fell 4.6 percent and the Nasdaq ended 4.5 percent lower. In light of concerns about a recession, the few economic releases scheduled for next week will be closely watched. The data on tap includes January retail sales, January industrial production, weekly jobless claims and preliminary February consumer sentiment.
"Retail sales and industrial production data could give us a better sense of, if we have a recession, how deep or how shallow is it going to be," Prudential's Praveen said.
Investors will also scour Federal Reserve Chairman Ben Bernanke's testimony on Thursday before the Senate Banking Committee on the U.S. economy and financial markets for clues about the outlook for interest rates, he said.
"Anytime anyone from the Fed has said something recently, the market has reacted," Praveen said. "The market will really be trying to read between the lines of what Bernanke says: Is the Fed going to continue to be aggressive on cutting rates or will he talk about inflation?"
GDP data from Europe and Japan could shed light on the extent to which the U.S. slowdown is curbing growth in the rest of the world. A weak reading on either of these would add to concerns about a global economic slowdown, which could hit profits of companies with overseas exposure.
Companies from a variety of sectors are reporting earnings next week as the fourth-quarter earnings season draws to a close. The focus will be on how they see themselves faring going forward, amid fears of a U.S. recession and a global economic slowdown.
"All of this is deterioration domestically and abroad, it's happening so fast. It's what they're saying about the outlook that counts," said Gary Shilling, president of A. Gary Shilling & Co., an investment research firm in Springfield, New Jersey.
Among companies reporting earnings next week are drugmaker Schering-Plough, Applied Materials, the largest supplier of tools for making microchips, Coca-Cola Enterprises and General Motors .
Wall Street analysts have been cutting their expectations for U.S. corporate earnings in the first two quarters of 2008 after fourth-quarter results showed conditions much worse than initially expected, according to a weekly survey by Reuters Estimates.