updated 4/30/2006 5:05:12 PM ET 2006-04-30T21:05:12

Major stock indexes held above five-year highs last week, even as a slumping U.S. dollar and soaring oil prices raised inflation concerns. But a raft of economic reports this week could upset this glass-half-full optimism if they suggest the economy has too much momentum, analysts said.

Major Market Indices

Federal Reserve Chairman Ben Bernanke told a congressional panel Thursday that the central bank may pause — but not necessarily stop — its rate-tightening campaign that has pushed the overnight bank loan rate to 4.75 percent.

But with the Fed saying it plans to closely monitor economic news, any hint of inflation or economic turbulence could cause investor heartburn. Nearly every report expected this week will bear weight in Wall Street’s assessment of the economy, including data on personal spending, job growth and worker productivity.

Analysts suggest the key might be more solid corporate earnings reports. First-quarter results so far have exceeded expectations; if that trend continues and the economy chugs along without signs of that surging energy costs are boosting prices elsewhere, stocks could ultimately rise, they say.

“We’re looking for continued growth without the impact of inflation,” said Ed Keon, Prudential Equity’s chief investment strategist. “If that continues, the market could go higher.”

Still, the opposite can’t be ruled out. Crude oil remains near $72 a barrel, and pump prices are above $3 a gallon in much of the country ahead of the summer driving season. Gold prices marched past 25-year highs and lifted other metals, as the U.S. dollar retreated to its lowest levels in almost a year.

Erratic trading left stocks little changed last week as Wall Street waffled over the latest batch of mostly promising economic reports. However, while the major indexes posted sturdy gains for April, disappointment over Microsoft Corp.’s earnings sent the Nasdaq composite index slumping on Friday.

For the week, the Dow Jones Industrial Average rose 0.17 percent, while the S&P 500 slid 0.05 percent and the Nasdaq lost 0.87 percent. In April, the Dow jumped 2.32 percent and the S&P 500 grew 1.22 percent, while the Nasdaq sank 0.74 percent.

Economic data
The week starts with the Institute for Supply Management’s manufacturing index for April, which is forecast to fall just 0.1 point to 55.1 from the prior month. Any index number above 50 indicates continued growth, but what investors will be focused on is its prices paid component, often an early warning signal on inflation.

Also on Monday, the Commerce Department reports March readings of personal income and spending; both are expected to increase by 0.4 percent.

On Thursday, the Labor Department reports figures on employee productivity and unit labor costs for the first three months of the year. Productivity is forecast to rebound to a 3 percent rate after declining at a 0.5 percent pace in the fourth quarter. If unit labor costs remain stable, that bodes well for the inflation picture.

Friday’s employment data will likely be Wall Street’s main focus for the week. Economists are forecasting the nation’s employers added 198,000 jobs in April, close to the 211,000 increase a month before.

Earnings reports
Dow index component Verizon Communications Inc. reports earnings Tuesday, with analysts predicting its quarterly profit fell to 59 cents per share from 63 cents a year earlier. Industry consolidation has weighed on Verizon’s stock, which finished Friday at $33.03, up 13.4 percent from its 52-week low of $29.13.

Starbucks Corp. releases its results after Wednesday’s closing bell. The coffee chain’s profit is forecast to rise 2 cents from a year earlier to 14 cents per share, helped by a sturdy sales advance. Starbucks’ stock has rallied this year, gaining 24.2 percent since the start of 2006 to close Friday at $37.27.

Manufacturing conglomerate Tyco International Ltd. has seen its stock zig-zag over the past year and it’s 6.9 percent above its 52-week low of $24.65 from February, ending Friday at $26.35. When Tyco reports Thursday morning, analysts predict its earnings will fall to 42 cents per share from 48 cents a year ago.

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