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By Ellis Mnyandu
NEW YORK, July 16 (Reuters) - An escalation of Middle East fighting and crude oil prices close to $80 a barrel will create more angst on Wall Street this week, just as the quarterly earnings reporting season hits full swing.
If that doesn't give investors enough to worry about, here is one more thing. Federal Reserve Chairman Ben Bernanke is set to appear before congressional committees on Wednesday and Thursday to testify about the Fed's semiannual monetary policy report.
Two major U.S. economic reports, notably the Producer Price Index and the Consumer Price Index for June, will be released this week, along with the minutes of the Fed's most recent policy-setting meeting. Economists polled by Reuters expect that the PPI and the CPI rose in June, in the overall figures and the core indexes, excluding food and energy.
Wall Street will watch the PPI and CPI reports for signs of whether the pace of inflation is picking up, and comb through the Fed's minutes for clues on when the central bank might take a break from raising interest rates.
The violence in the Middle East, though, will keep Wall Street on edge.
"The real concern is not so much Israel going to Lebanon, but it's whether Israel is going to threaten Syria," said Steve Goldman, a market strategist at Weeden & Co. in Greenwich, Connecticut.
"With Iran's backing of Syria, that would bring up a whole new issue. It's this lingering concern, which makes it tougher for stocks to rebound at this juncture."
Last week, Israel launched a military assault against targets in Lebanon after two of its soldiers were seized and eight killed.
The assault drove the price of crude oil up on Friday to a record $78.40 a barrel in electronic trading, fueling concerns that U.S. consumers may cut spending as their gasoline bills soar.
For the past week, the Dow Jones industrial average<.DJI> dropped 3.1 percent, while the S&P 500 index <.SPX> shed 2.3 percent, while the Nasdaq <.IXIC> lost 4.4 percent.
HOPING FOR A CEASE-FIRE
Analysts said if there were any signs over the weekend that the Middle East tensions might ease, then earnings will take center stage in the week ahead. That could give the market a catalyst to crawl back up out of its slump.
"The geopolitical risks are a stiff headwind," said Joseph Quinlan, chief market strategist at Banc of America Capital Management in New York.
"Over the weekend," he said, "we do need to see a cease-fire ... Hopefully the G8 can craft some kind of deal that lowers the temperature," he added, referring to the Group of Eight summit of industrialized nations, which meets through Monday in St. Petersburg, Russia.
But "if things continue to boil, oil prices could break through $80 a barrel, and that would weigh on the stock market early on Monday.
EARNING BLITZ
In the coming week, the numbers blitz will begin. Earnings reports are scheduled from Dow components Microsoft Corp. (MSFT.O: Quote, Profile, Research), the software maker; diversified health-care company Johnson & Johnson (JNJ.N: Quote, Profile, Research); heavy equipment maker Caterpillar Inc. (CAT.N: Quote, Profile, Research) and diversified manufacturer Honeywell International Inc. (HON.N: Quote, Profile, Research).
Apple Computer Inc. (AAPL.O: Quote, Profile, Research), the maker of the iPod digital music player, and Web search company Google Inc. (GOOG.O: Quote, Profile, Research), are among the major technology names and Nasdaq stalwarts set to post their quarterly results, along with chip maker Intel Corp. (INTC.O: Quote, Profile, Research).
According to Reuters Estimates, S&P 500 companies' earnings are forecast to rise nearly 10 percent for the quarter. This could lead to a 16th consecutive quarter of double-digit profit growth -- if most companies deliver the standard margin of earnings outperformance of between 2 percent and 3 percent over consensus estimates.
"It's going to be important to see that you don't get too many disappointments this quarter because that's going to make the next quarter even more concerning," said Barry Hyman, equity market strategist at EKN Financial Services Inc. in New York.
"We could see some upside surprises in health care and staples. The consumer discretionary sector will probably have a lot of misses," said Scott Wren, senior equity strategist at A.G. Edwards & Sons Inc. in St. Louis.
FED CHAIRMAN ON THE HILL
Bernanke's testimony on Capitol Hill is scheduled for Wednesday and Thursday, starting at 10 a.m. EDT (1400 GMT) each day. On Wednesday, the Fed chairman will speak to the U.S. Senate Banking Committee and on Thursday, he will testify before the House Financial Services Committee.
Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, will speak on "The U.S. Economy and Current Challenges in Monetary Policy" on Wednesday before a business leaders' luncheon in Omaha, Nebraska.
The minutes of the Federal Open Market Committee's June 28-29 meeting, when it raised interest rates for the 17th consecutive time, will be released on Thursday at 2 p.m. EDT (1800 GMT).
PPI AND CPI FORECAST HIGHER
Economists polled by Reuters forecast that the overall U.S. Producer Price index, a gauge of prices received by farms, factories and refineries, rose 0.3 percent in June after a 0.2 percent rise in May. Core PPI, excluding volatile food and energy prices, is forecast up 0.2 percent after a 0.3 percent gain in May. The Labor Department will release the June PPI report on Tuesday at 8:30 a.m. EDT. (1230 GMT)
The overall Consumer Price Index is expected to rise 0.2 percent in June after climbing 0.4 percent in May, according to the Reuters poll. Core CPI, meanwhile, is expected up 0.2 percent in June, following a 0.3 percent increase in May. The June CPI report is set for Wednesday at 8:30 a.m. EDT. (1230 GMT)
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