updated 8/5/2007 2:47:39 PM ET 2007-08-05T18:47:39

With two weeks of volatility behind it, Wall Street faces the prospect of more turbulence — unless the Federal Reserve comes to the rescue.

Major Market Indices

Waxing and waning worries about a shrinking availability of credit have sent stocks gyrating, with the Dow Jones industrials swinging by triple digits four straight days last week. On Friday, the Dow plunged more than 280 points after Bear Stearns Cos.’ chief financial officer described the current turmoil in the credit market as being the worst he’d seen in 22 years; on other days news of mortgage lenders’ problems or disappointing housing data provided the impetus to sell.

The Fed’s Open Market Committee’s regularly scheduled August meeting on Tuesday might be key in whether the markets can settle down or not. The Fed is widely expected to keep the benchmark rate steady at 5.25 percent, as it has done since last summer, so the focus will as usual be on its economic policy statement.

For months, Fed policy makers have stated they expect the economy to recover, and that curbing costs is their primary concern in light of uncomfortably high inflation. Given the past two weeks on Wall Street, investors are likely to be more interested in whether the central bank addresses credit conditions, and, if it does, what it has to say.

Still, if the Fed gives any hint that it might consider raising rates — an action that would make mortgage and corporate credit more expensive and harder to obtain — the market can expect to see more of the kind of selling that has chopped more than 800 points from the Dow since it closed above 14,000 for the first time on July 19.

That drop, which comes to nearly 6 percent, puts the Dow more than halfway toward the technical threshold of a correction, which is 10 percent. Some analysts argued the stock market was way too high and therefore due for a shaking-out. But the turmoil the market has seen the past few weeks is more than portfolio housecleaning — some investors aren’t sure stocks are the place to be if there’s less easy money around to fund the buyouts and companies’ stock buybacks that had powered the market’s rally during the first half of this year.

But even if the market gets a lift from the Fed, there’s a good chance it will be short-lived — in its current state of mind, Wall Street is shrugging off good news and choosing to sell off on every mention of words like credit, subprime, mortgage and default. Even in calmer times, the market has been able to hold on to soothing remarks from the Fed for only a short period of time — believing, perhaps, that the central bankers are as fickle as Wall Street itself.

Last week, despite Friday’s huge loss, the Dow fell just 0.63 percent, while the Standard & Poor’s 500 fell 1.77 percent and the Nasdaq composite index lost 1.99 percent.

There is little economic data that will help soothe the market this week. On Tuesday, in addition to the Fed statement, Wall Street will watch for the Labor Department’s preliminary reading on second-quarter productivity and labor costs, and the Fed’s report on June consumer credit.

Productivity is expected to have increased 2.2 percent from the preceding quarter, and costs are expected to have risen 1.9 percent. Consumer credit is expected to have gained $6.7 billion, compared to May’s $12.9 billion jump.

On Thursday, the Commerce Department releases data on June wholesale trade, and on Friday it reports on July import prices.

Economists predict that wholesale inventories rose 0.5 percent in June, the same as in May, and that import prices rose 0.7 percent last month, a smaller increase than in June.

The bulk of second-quarter earnings have come in, but this week brings results from some key technology companies.

On Tuesday, Cisco Systems Inc. is expected to report a profit of 35 cents a share for its fourth quarter. The computer-networking company closed at $29.46, at the top of its 52-week range of $17.10 to $30.39.

Sprint Nextel Corp. on Wednesday is expected to report earnings of 22 cents per share. The wireless provider closed at $19.77, at the midpoint of its 52-week range of $15.92 and $23.42.

Vonage Holdings Corp. releases quarterly results Thursday, when it is expected to report a loss of 34 cents a share for the second quarter. The Internet phone carrier’s shares closed at $2.04 on Friday, at the low end of its 52-week range of $1.83 and $9.07.

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