The European results season trundles on this week with earnings from a number of top companies but volatile oil prices are likely to continue dominating investor sentiment, analysts said.
US employment data, due later on Friday, will also be a key for markets after weak reports in the two previous months and other recent data which has raised doubts about the strength and sustainability of the global economic recovery.
"These numbers will be the judge and jury in the market's mind on whether the US recovery is still mired down in the recent economic soft spot or starting to pull free again," said David Brown, chief European economist at Bear Stearns. The week is likely to get off to a slow start, with US markets closed on Monday for the Labour Day holiday.
Banca Intesa kicks off the next leg of the earnings season, dominated by French and Italian firms, with its half-year result on Monday. Italy's largest bank by assets is expected to post second-quarter earnings of 430 million euros, up about 8 percent on a year earlier.
Activity heats up in France on Wednesday with detailed figures from oil major Total, hotels group Accor, supermarket operator Casino and conglomerate Bouygues all posting half-year results. Preliminary results or sales figures have already been reported.
Brewers will also be in the spotlight, with results from Heineken on Wednesday and Interbrew the following day.
Thursday also sees a swag of results from Italy, including bank Capitalia, utility Enel and detailed figures from Fiat and Telecom Italia. Britain's BAE Systems and France's Clarins also report.
While high oil prices have fed solid earnings at Total and other oil companies, the impact on other sectors has been negative.
"Investors are confused about the macro economic environment," said Jacob de Tusch-Lec, a European equity strategist at Merrill Lynch.
"We are still seeing that earnings expectations for 2005 are being cut. The fear is that higher oil prices and higher input costs will hit the pricing power of companies."
Investors have endured volatile trading in oil in recent months, with the price of crude surging to almost $50 a barrel two weeks ago, from just over $35 at the end of June. Prices tumbled last week but have bounced back strongly in the last few days and traded up about 0.5 percent near $44.30 a barrel.
Equity markets have been mirroring moves in the oil prices, with rising crude accompanied by a sell-off in equities, although the relationship has become less pronounced in the past few sessions.
"I think people have bought the view that the risk of a slowdown in global growth from an oil shock is already priced in - what's not priced in now is a correction in the oil price," said Anais Faraj, strategist at Nomura in London.
The FTSE Eurotop-300 index of pan-European blue chips is steady for the week, having bounced almost 5 percent from a 2004 low in mid-August.
The Bank of England holds a policy meeting on Wednesday and Thursday but market expectations of a rate rise have been pushed out to later in the year. All 50 economists polled by Reuters this week expect rates on hold this week, with most picking November as the next rate hike.
"The (UK) housing market paused in August and that was the main reason to keep on jacking up rates, so we want to see what the bank thinks," Faraj said, adding that the case for higher global interest rates was fading.
A weak report in Wednesday's "Beige Book", the Federal Reserve's anecdotal survey of US economic conditions, would intensify expectations that the Fed will leave rates on hold, Faraj said.
"What equity markets are waiting for now is perhaps an admission from the Fed on September 12, that there is no case for raising interest rates, because that's what the market has discounted. That would probably trigger a strong rally in equities."
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