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High input prices, supply chain disruptions from the tsunami disaster in Japan and slowing demand from China have combined to brake manufacturing momentum in Europe, the United States and Asia in recent months following a steady run of robust growth.

Just how sharp the slowdown is will become clearer this week with the release of data from factory purchasing managers in major economies across the globe.

In the euro zone, where divergence between core and peripheral countries has been the story for months, signs of more broad-based trouble emerged last week. A preliminary manufacturing index for May posted its biggest one-month fall since the collapse of Lehman Brothers in 2008.

That reading is expected to be confirmed on Wednesday, as are factory slowdowns in the United States and China, where curbs on bank credit and power shortages have slowed growth, adding to worries about the world's second-largest economy.

Driven by higher energy prices, costs for the U.S. manufacturing sector rose to their highest level in nearly three years last month. A nascent slowdown in the sector, due in part to poor weather, has been blamed for an uneven labor market recovery.

U.S. companies created jobs at their fastest pace in five years in April. But May non-farm payrolls data due on Friday risks disappointing after a surprise rise in U.S. jobless claims last week highlighted persistent hurdles in the labor market.

Economists polled by Reuters expect U.S. payrolls to rise by 185,000 in May, down from April's 244,000 expansion, with the unemployment rate edging down to 8.9 percent from 9.0 percent.

That compares unfavorably with the labor market in Germany, where the unemployment rate is forecast to dip to a post-reunification low of 7.0 percent this week.

DELICATE MOMENT

"This is a delicate moment for the global economy, and the crisis is not over until our economies are creating enough jobs again," said Angel Gurria, secretary general of the Paris-based Organization for Economic Cooperation and Development.

"There is also some concern that if downside risks reinforce each other, their cumulative impact could weaken the recovery significantly, possibly triggering stagflation in some advanced economies."

The OECD raised its 2011 growth forecasts for the United States and Germany last week but slashed its forecasts for Japan to reflect the devastation from its earthquake-tsunami-nuclear triple disaster.

It now expects economic contraction of 0.9 percent this year and has warned that a slow recovery in Japan could threaten its partners if global supply chains remained disrupted.

In Europe, the focus remains on Greece's woes after Prime Minister George Papandreou's government failed to forge a consensus on austerity measures with opposition parties.

European governments are reluctant to pledge additional aid to Greece without broader political backing for reforms, which include aggressive privatizations to meet fiscal targets set in the EU/IMF bailout Athens secured one year ago.

Without more European money, the IMF has said it will not release its portion of a June aid tranche that Greece desperately needs to avoid a debt default.

"The stand-off highlights once again the continued lack of a cohesive policy response to the region's crisis," Capital Economics said in a research note.

"Meanwhile, the latest batch of euro-zone business surveys brought the strongest signs yet that growth in the core economies may be starting to slow. With the periphery still struggling, the second half of 2011 could prove pretty tough for the region as a whole."

(Writing by Noah Barkin; Editing by Dan Grebler)

With important manufacturing and jobs data due this week, it could start to get even riskier.

That means nervous investors are likely to keep a lid on equity prices this year as they grapple with slowing global growth and a host of geopolitical risks from the Arab Spring to debt defaults in the euro zone.

The actions of some big Wall Street banks best show the shift in the risk-reward nexus. Over the last two weeks, UBS, Citigroup and Goldman Sachs have effectively lowered their view of what investors will be willing to pay for a dollar of corporate earnings this year.

Jonathan Golub, chief U.S. equity strategist at UBS in New York, made the decision to keep his S&P 500 Index target on hold, even though he increased his expectations of what S&P 500 companies would likely earn this year and next.

"Earnings are going to continue to surprise to the upside, but investors will continue to be reluctant to believe in the sustainability of earnings and, therefore, not give full credit to that," Golub said.

Golub raised his average S&P 500 earnings estimate to $101 from $96 for this year, but left his year-end S&P 500 target at 1,425. By doing that, Golub has effectively lowered his price-to-earnings (P/E) ratio -- the amount investors are willing to pay for a dollar of earnings -- to 14.1 from 14.8.

That amounts to an increase in the expected equity yield -- a measure of the return investors want -- to 7.1 percent from 6.8 percent.

That is significant because the expected price-to-earnings ratio was already below what investors have historically been willing to pay for S&P 500 earnings. The average trailing P/E ratio is 15.6 over the last five years and 19.2 since 1988, according to Standard & Poor's.

Golub argues that a batch of weak economic data pointing to slowing manufacturing, a weak housing market and stubbornly high unemployment is weighing on investor sentiment. Weakness in commodity markets and rotation into defensive sectors of the stock market testify to that shift.

SOFT JOBS DATA MAY HIT S&P

With this week's ISM national manufacturing survey for May expected to show more weakness and payroll data tipped to show fewer than 200,000 jobs added during the month, risk aversion -- driven by fear about the economy -- could get worse before it gets better.

Goldman Sachs economist Zach Pandl said his firm is predicting 150,000 jobs were added in May, compared with a Reuters consensus of 185,000.

An ISM reading below 60 on Wednesday would show "the strongest period of growth has passed and investors may need to adjust their expectations going forward," said Michael Sheldon, chief market strategist at RDM Financial in Westport, Connecticut.

Economists in a Reuters poll expect the ISM reading to fall to 58 in May from 60.4 in April.

Goldman Sachs has also been tweaking its stocks outlook. It cut its year-end S&P 500 target, one of the highest on the Street, to 1,450 from 1,500, and lowered its 2012 earnings outlook to $104 to $106, citing lower global growth, higher commodity prices and slightly higher inflation.

Goldman analyst David Kostin, who is responsible for the S&P 500 target, was unavailable for an interview.

However Goldman's analysts wrote: "As we transition into the late expansion phase of the cycle later this year, the risk-reward balance for the S&P 500 is likely to become slightly less attractive."

Citigroup also slightly increased its earnings estimates for S&P 500 companies, lifting its 2011 forecast to $98 from $96.50. Although that is admittedly only a small increase in the earnings estimate, Citigroup chose to leave its S&P 500 target at 1,400.

Tobias Levkovich, Citigroup's chief U.S. equity strategist, could not be reached for a comment.

The targets for all three banks are still at the upper end of analysts' estimates and are 5 percent to 8 percent above current levels.

Even if the index does get up to those levels later this year, those gains are slight compared with the nearly 80 percent run the S&P 500 has experienced since hitting a bear market low in March 2009.

For people like Bill Strazzullo, partner and chief investment strategist at Bell Curve Trading in Boston, that means the risks are firmly on the downside.

"The good news is there's some upside. The bad news is that you've probably made about 80 (percent) to 90 percent of this rally," Strazzullo said. "From a 'bigger picture' standpoint, the risk-reward really doesn't make sense."

Strazzullo believes the S&P 500 will revert toward fair value, which he places at 1,100, based on where most of the money in the S&P 500 is invested. He is looking at some longer-term bearish options trades to capitalize on the end of the March 2009 rally.

"I'm not saying we'll go all the way back there, but the point is, you could drop a lot further than most people anticipate."

(Wall St Week Ahead appears every Sunday. Questions or comments on this column can be e-mailed to: edward.krudy(at)thomsonreuters.com)

(Reporting by Edward Krudy; Additional reporting by Rodrigo Campos; Editing by Jan Paschal)

In comments to The Sunday Times newspaper, Transport Minister Leo Varadkar became the first cabinet member to cast doubt in public on Ireland's ability to raise cash on the bond market because of punishing yields demanded by investors.

"I think it's very unlikely we'll be able to go back next year. I think it might take a bit longer ... 2013 might be possible but who knows?" Varadkar was quoted as saying.

"It would mean a second program (of loans from the EU/IMF)," he said. "Either an extension of the existing program or a second program. I think that would generally be most people's view."

Deputy Prime Minister Eamon Gilmore told broadcaster RTE that fears of a domino effect from Greece's problems were overblown. The possibility of a Greek default has sent bond yields rocketing for indebted Ireland, Portugal and Spain.

"It's not a situation that if Greece defaults then there are immediately implications for Ireland," Gilmore said.

"If Greece defaults there are implications for the wider euro zone and obviously we are part of that."

"It is wrong to put Ireland in the same basket as Greece."

PRIVATISATION AMBITIONS

Greece's hopes of averting default dimmed over the weekend amid fears the country, whose debt burden stands at around 330 billion euros, may have missed fiscal targets set by its creditors.

The IMF has dismissed reports that an international inspection team had found that Greece had missed all its fiscal targets. But the current mission to Athens has stayed far longer than on previous occasions and is locked in talks with the government to get economic reforms on track.

Athens' creditors are increasingly focused on the possibility of raising more funds from privatizations and a poll on Sunday showed that an overwhelming majority of Greeks are in favor of selling and developing state assets to raise 50 billion euros.

The European Central Bank and the IMF, however, don't believe the privatization program is ambitious enough. ECB board member Juergen Stark said Greece could raise six times more than the 50 billion euros planned from asset sales, echoing earlier views from the IMF.

A Greek paper reported on Sunday that the government was considering setting up a Spanish-style "bad bank" to clean up its lenders' accounts from "toxic" Greek bonds and make them more attractive to potential buyers.

Athens is in a race against time to secure political consensus on fiscal reforms before the EU and the IMF will free up more cash to plug funding gaps in the next two years.

Ireland, meanwhile, wants to tap investors for funding in 2012 before its 85 billion euros EU-IMF bailout runs out the following year.

But investors believe Ireland will be unable to return to the market and instead will have to tap the European Union's permanent rescue fund in 2013, which might require some restructuring of privately held sovereign debt.

Reflecting this medium-term risk, Ireland's two-year and five-year paper are yielding close to 12 percent, more than its 10-year bonds on the secondary market.

Some 50 billion euros of the existing EU-IMF bailout has been earmarked for sovereign funding requirements with the remainder set aside to prop up the country's ailing banks.

Earlier this month, the IMF said whatever was left over after recapitalizing the banks could be channeled to the sovereign if there was a delay in returning to markets.

At the end of March, the Irish government said the banks needed 24 billion euros to bulletproof their balance sheets but Dublin hopes some five billion euros can be raised from imposing losses on junior bondholders and asset sales, meaning that 19 billion euros of the 35 billion would be tapped.