Wall Street will keep a cautious eye on Europe in the week ahead, as the global credit crisis proved it still carries a potent sting for markets.

Concerns about European sovereign debt started with Greece early in the past week and moved onto Portugal, Spain and other countries. By Thursday, a global sell off intensified, taking stocks and commodities lower. The dollar firmed, the euro fell, and investors fled to the relative safety of U.S. Treasurys.

"I don't think this correction is necessarily over, and we'll get some rallies, but we've got to repair some damage technically. I don't think we're in for some big bear market, if the global recovery continues," said BlackRock Vice Chairman Robert Doll.

"We had a credit bust and too many people thought, 'well, it looks like we solved our credit problems,' he said. "There are credit problems all over the place, and they are showing up in Greece now. There will be a consortium of European governments that come together and they'll come up with a band aid. This is not the last credit problem that we're going to hear about."

There is little U.S. economic data in the week ahead. The most important item on the calendar is retail sales for January. The Euro zone, however, will release fourth quarter GDP data Friday. There is also inflation and trade data from China.

Fed Chairman Ben Bernanke testifies before Congress Wednesday on the Fed's plans to unwind stimulus, and the G-7 finance ministers meet in a remote part of Canada this weekend. The U.S. Treasury is holding auctions for more than $80 billion in notes and bonds. On the earnings front, Coke, Disney, UBS and Pepsi are among the companies reporting.

Doll said markets continue to fret about whether China will harm the global recovery with its efforts to cool its own economy by tightening lending. There is also concern about what actions the Obama Administration might take,following a Democratic loss in the Massachusetts Senate race, which took away the party's 60-seat majority.

Traders are sharply focused on news from Washington. Markets were unsettled by the Administration's plans to limit risk-taking by banks, the subject of Congressional testimony this past week. Also, the Obama Administration unveiled its $3.8 trillion budget, signaling a sure hike in taxes.

Markets Mayhem

Stocks are down about 7 percent from their January highs. Doll says the market could correct 10 percent or more. "Could we probe lower? Of course we could, but I think it's in the 10ish level," he said. "I don't think this is going to be 20 percent."

"I don't get too hung up on these sort of things and get worried. I think this is just a pause to refresh," said Doll. He said this type of trading event is more "normal" than what the market saw last year, when it kept rising straight up with only very shallow pull backs.

Doll said sovereign debt issues will be a big focus in the coming week. "That'll be the main story of the week.. but earnings have been pretty good, and hopefully that will make some people feel better," he said.

The dollar gained 1.5 percent in the past week against the euro, finishing at $1.3665 per euro. The dollar fell nearly 1 percent against the yen but rose 2.25 percent against British sterling.

Oil lost 2.3 percent to $71.19 per barrel, and gold tumbled 2.8 percent to $1,052.20. Treasurys gained, sending yields on the 10-year lower to 3.546 and the 2-year to 0.764

Friday's Roller Coaster

Friday's stock market action gave traders encouragement, at least in the short run. Stocks finished marginally higher Friday, but not before taking a deep swoon in mid afternoon. The market then staged a rapid turnaround as massive short covering helped push it into positive territory in the final hour. The Dow ended at 10,012, up 10, and the S&P was up 3 points at 1066. The Dow finished the volatile week just half a percent lower, and the S&P was off 0.7 percent.

"It was a very shocking day. When we were nearing the bottom and went below 1050, there was certainly panic in the air. Volatility got pretty cranked up there for awhile," said Patrick Kernan, who trades S&P 500 options at the Chicago Board Options Exchange

"We were a little long at the close. We decided to go out a little bit bullish. It was much more for a shorter term play than long, and it was because we saw it come back so much," he said. The VIX, the CBOE's volatility index, also moved sharply, edging close to 30 at one point in the day Friday before finishing the week at 26.11.

Kernan said there was a lot more complacency at the end of the trading day Friday. "...It definitely feels like there was a lot of second guessing, just by the nature of the trades..like people would do a trade and say 'whoops!, maybe they didn't want to do that. You saw a lot of stuff unwinding pretty fast."

• Slideshow: World's Riskiest Government Bonds