updated 2/18/2007 3:29:45 PM ET 2007-02-18T20:29:45

Wall Street might have a tough time matching last week’s outstanding performance in the coming days, but inflation figures could be the impetus for extending the advance.

Major Market Indices

The Labor Department will release its consumer price index for January on Wednesday, giving the Federal Reserve one of its primary indicators to gauge the pace of inflation. As Wall Street knows quite well, a larger than expected rise in inflation at the consumer level might nudge Fed policy makers toward raising interest rates to keep prices in line.

Remarks last week from Federal Reserve Chairman Ben Bernanke that economic growth and inflation are moderating sent stocks soaring last week, pushing the Dow Jones industrials to another series of record highs. Bernanke gave investors what they were hoping for, some assurance that rates were likely to remain stable — as long as economic data support that trend.

But because there’s a continual stream of data for investors to parse, soothing words like Bernanke’s don’t tend to last too long in the stock market. So the CPI has the power to either send stocks climbing further this week, or bring the market’s February rally to a halt.

As of Friday, analysts expected the CPI to show an increase of 0.1 percent in January, slower than December’s 0.4 percent. But they expected the core CPI — which strips out volatile food and energy prices — to register a rise of 0.2 percent, quicker than December’s 0.1 percent.

For more clues about where rates are headed, investors will pore over the Federal Open Market Committee’s minutes from their Jan. 31 meeting, which will be released Wednesday. The central bank’s policy makers decided to leave the benchmark interest rate steady at 5.25 percent for the fifth straight meeting.

Beyond interest rates, Wall Street will be looking to see if the months-long surge in takeover deals continues. There were no mega-deals announced last week, but reports that two companies are vying for aluminim producer Alcoa Inc. helped trigger last week’s big advance.

Last week, the Dow rose 1.48 percent, the Standard & Poor’s 500 index rose 1.22 percent, and the Nasdaq composite index rose 1.48 percent.

The coming week will also bring some of the last large earnings reports for the fourth quarter of 2006. Perhaps most interesting will be retailers Wal-Mart Stores Inc., Home Depot and Lowe’s Cos., whose results and outlooks could provide clues to how strong consumer spending is and the extent to which the housing slump is crimping sales of home improvement-related goods.

Other economic data this week
On Tuesday, the Chicago Fed releases its regional survey of business activity.

And on Wednesday, the Conference Board will release its index of leading economic indicators for January. The market is expecting the index, which is considered a key forecasting gauge, to increase by 0.2 percent.

And earnings still keep coming
On Tuesday, Home Depot, Wal-Mart and computer maker Hewlett Packard Co. release their results for the latest quarter.

Home Depot is expected to post a profit of 52 cents a share. Shares of the company closed at $41.44 on Friday, near the high end of its 52-week range of $32.85 to $43.95.

Analysts predict Wal-Mart’s earnings will be 89 cents a share. The stock closed at $48.48, after trading between $42.31 and $52.15 over the past year.

Hewlett Packard is expected to show that it earned 50 cents a share. Its stock closed at $27.04, near the lower end of its 52-week range of $21.26 to $40.23.

On Thursday, JCPenney Co. is expected to report earnings of $1.96 a share. The stock closed Friday at $85.25, at the high end of its 52-week range of $56.24 to $85.92. And Friday, Lowe’s is expected to report fourth-quarter earnings of 37 cents a share. The stock closed Friday at $33.27, after trading between $26.15 and $34.82 over the past year.

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