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WALL STREET analysts were looking to see whether investors could keep the bull running for another week as a long and tumultuous summer draws to a close, but last week's trading turned sour for the US stock market as the latest data on the US housing market showed the slowdown in that sector is coming even faster, and perhaps more precipitously, than many in the market had anticipated.

The extraordinary rise in home values over the past five years has been at the heart of robust consumer spending, and many market prognosticators fear a steep drop in home sales could slow economic growth even more than the Federal Reserve is hoping.

'The message from the markets in response to these housing numbers is that we may not be headed towards a soft landing,' says Hugh Johnson, chairman of Johnson Illington Advisors. 'We may be headed for a hard landing, and if that's the case, then the stock market has further to go on the downside. Does this make me restive, uneasy and uncomfortable? The answer is yes, very much so.'

That unease will very likely continue into this week, and while few stocktraders are anticipating a sell-off, fewer still are forecasting a return to bullishness in the next two weeks. 'Between the fact that a lot of Wall Street is away this week, and that we're not anticipating any market-shaking news, I think it's fair to anticipate a quiet, trading-range bound market until after Labour Day,' said Dick Serenson, equity trader at Pacific Security Capital Management.

Most investors would have been happy with a quiet week last week, but it was not to be as the National Association of Realtors reported on Wednesday that existing homes sold at a 6.33 million annual clip last month, the lowest level in 2 1/2 years and down 4.1 per cent from June, a bigger decrease than economists had been forecasting.

'The markets' message in response to these housing numbers is that we may not be headed towards a soft landing.' - Hugh Johnson, chairman of Johnson Illington Advisors

The bad news got worse on Thursday, when the Census Bureau reported sales of new single-family homes came in at a seasonally adjusted annual rate of 1.072 million, down from the revised rate of 1.12 million in June and a whopping 22 per cent drop from a year earlier. Compounding the disappointment, the seasonally adjusted estimate of new houses for sale at the end of July rose to the highest-ever level of 568,000, up from 566,000 at the end of June.

The gloom over the housing slump was emphasised by luxury homebuilder TollBrothers, which reported a 19 per cent decline in third-quarter profits. Toll also lowered its profit outlook for the year, citing a 'continuing malaise' in the housing market.

For the week, the Dow Jones Industrial Average dropped 97 points, or 0.85 per cent, and the S&P 500 fell 7 points, or 0.55 per cent. The Nasdaq Composite gave back 23.5 points, or 1.09 per cent, over the five sessions, despite a modest gain on Friday.

Market strategists like Thomas McManus, equity strategist with Bank of America, are anticipating more weeks like last week ahead for stocks. In a report on Friday, he noted that US mutual fund holders pulled another US$1.2 billion out of domestic equity funds, maintaining a steady pace of outflows for a month now. 'Investors are starting to speak with their feet now, and if we see more evidence in coming weeks that the economy's slowdown is going to be steeper than anticipated, the pace of selling will certainly increase,' he said.

Investors will have plenty of economic data to pore over this week, capped by the all-important August employment report on Friday. Personal income and consumer spending figures, the revised second-quarter gross domestic product figure, factory orders for July, and monthly car sales will all be reported in the days leading up to the August jobs report.

'Wall Street will be hoping for job growth in that report, but not too much job growth,' said Stein Roe analyst Sean Howard. 'We're walking a fine line now, as we will be throughout the rest of the year, between wanting a healthy, growing economy, and worrying that inflation will keep rising and prod the Fed to start hiking rates again, and jobs are a big part of the economic picture for both growth and inflation,' he observed.

Economists are expecting to see new job growth of about 100,000 jobs. Numbers below that will spark talk of a recession, while a much bigger than expected increase will have the nail biters anticipating a return to action by the Fed.

Speaking of the Fed, investors will be closely reading the minutes from its most recent rate-policy meeting after their release tomorrow. The market had hoped for fresh clues about the direction of interest rates on Friday in a speech by Fed chairman Ben Bernanke in Jackson Hole, Wyoming.

But Mr Bernanke's address on the subject of global economic integration provided no such insight and didn't have an impact on Friday's market. Stay tuned.