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With the global data calendar light this week, that is the key question many will want answered by policymakers at the U.S. central bank after they meet on Tuesday and Wednesday.

Since their last meeting in April, U.S. economic data has taken a decisively weak tone. But at the same time, there is no evidence that things are falling apart.

"The key questions will be about how the Fed views the present combination of weak growth and higher-than-expected inflation," said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts.

"Does the Fed still expect growth to pick up after a soft first half? Is it still confident that the upward creep in core inflation will be contained?"

Culprits for the weakness in the U.S. economy abound. First it was bad winter weather; then the so-called Arab spring, which pushed up gasoline prices; and finally Japan's earthquake and tsunami, whose disruptive effect on manufacturing surprised economists with its virulence.

Employment stumbled in May and manufacturing braked sharply, while a pick-up in core inflation gathered speed.

But on the other side of the coin, factors that hampered growth are loosening up.

"The Fed is going to acknowledge that the economy slipped into a soft patch, but they will argue for some reacceleration of activity in the second half of the year," said Christopher Probyn, chief economist at State Street Global Advisors in Boston.

The U.S. central bank is expected to confirm its $600 billion government bond-buying program will conclude at the end of the month, as scheduled. The Fed, which has been criticized for risking inflation, has set the bar very high for any more monetary stimulus.

While core inflation is rising, motor vehicle shortages bear part of the blame, and the increase is not yet seen as a threat to the economy. At the same time, the overall inflation picture is improving as gasoline prices retreat.

GROWTH FORECASTS TRIMMED

Signs of economic slowdown have also been evident in other advanced economies. On Friday, the International Monetary Fund warned of threats to world growth, citing the euro zone debt crisis and signs of overheating in emerging market economies.

It trimmed its forecast for 2011 U.S. growth but raised its euro zone projection. But even in Europe, sentiment is souring due to the troubling sovereign debt crisis.

A survey on Friday is expected to show a dip in business confidence in Germany, with the Ifo business climate index forecast to slip to 113.5 in June from 114.2 the prior month.

Europe's debt crisis may pose the main global risk. Eurogroup finance ministers meet on Sunday and Monday to try to find a solution to Greek's debt woes, ahead of the EU leaders summit in Brussels on Thursday this week. Fears that Greece could default on its debt have hammered global stock markets.

"They're buying time so that when the (debt) restructuring occurs, the contagion will be contained, because the core governments themselves would be holding the bonds and the banks would have time to build up earnings and create a capital cushion," said State Street's Probyn.

U.S. data due this week will likely underscore the current bout of weakness. But it should also suggest forecasts of a turnaround in the second half of the year remain on track.

A report on Tuesday is expected to show sales of previously owned U.S. homes declined in May, in part the result of tornadoes and floods that slammed large parts of the country.

But economists expect orders for long-lasting goods, a gauge of business spending, to have rebounded in May. That report, due on Friday, would be a welcome sign after a series of reports that suggested manufacturing was faltering.

"We are planting the seeds for much firmer activity in the second half," said Anthony Chan, chief economist JPMorgan Private Wealth Management in New York.

If only the job market would follow.

Weekly data on jobless benefit claims on Thursday could shed clues on whether employment improved in June after the economy added a disappointing 54,000 jobs last month.

The claims data covers the survey period for the June employment report, due early next month. Economists expect first-time applications for state unemployment benefits were little changed at 414,000 in the week ended June 18.

(Reporting by Lucia Mutikani; Editing by Dan Grebler)

After setting its closing high for the year on April 29, the Standard & Poor's 500 Index has lost about 7 percent. Wall Street typically defines a drop of 10 percent or more from a recent peak as a correction.

The benchmark S&P 500 hit its lowest point right on its 200-day moving average in volatile trading on Thursday. The index then rallied 1 percent from that session low to close on Friday at 1,271.50. It also scored its first weekly gain in the last seven weeks.

At Friday's close, the S&P 500's 200-day moving average was around 1,259. If the level holds, it could be a springboard for stocks to rally.

"We seemed to have bounced off that level of concern that people were watching," said David Joy, chief market strategist at Ameriprise Financial, where he helps oversee $571 billion in assets. "At least for now, that is a little bit of evidence that these problems are solvable and markets could move higher."

The Nasdaq, which often leads market moves, has not fared so well, and that is a worry to investors. It has closed below its 200-day moving average and it kept falling on Friday when other indexes stabilized. It ended the week down 1 percent. From its 2011 closing high on April 29, the Nasdaq has slid nearly 9 percent -- getting close to a correction.

Bond markets remain anxious about a Greek default.

Most economists are overwhelmingly skeptical that Greece can ever repay its mountain of debt, which has reached 340 billion euros -- or 150 percent of the country's annual economic output.

Reuters' calculations using five-year credit default swap prices from Markit show an 81 percent probability of Greece eventually defaulting, based on a 40 percent recovery rate.

SOME SAY IT'S TIME TO BUY

But for now, it seems stock investors are sanguine. They believe the European Union will rescue Greece without major disruption to markets and are using the drop in equity prices as a buying opportunity.

Bob Doll, chief equity strategist at BlackRock, says he has been using the pullback to reduce his underweight in cyclical stocks such as a Alcoa Inc, Applied Materials, and International Paper.

He has also been cutting his overweight in defensive areas such as healthcare, trimming positions in stocks like United Health and Aetna.

Doll believes the S&P 500 will rally to 1,350 by the end of the year.

"We're going to find Band-Aids and we're going to muddle through these credit problems," Doll said. "The consequences of not following that route could be pretty dire, and I think the interested vested parties are going to step up."

BlackRock is one of the world's largest money managers with $1.56 trillion in equity assets under management. Doll is also lead portfolio manager of BlackRock's Large Cap Series Funds and advises on $317 billion that is actively managed.

TUNING IN TO THE FED

A slew of data showing the United States is on the verge of a slowdown has already done its damage to the market. After the heavy selling of the past several weeks, it seems investors are taking a wait-and-see approach -- for now.

Joy is waiting until after the summer before making big moves.

"There is so much uncertainty that it is probably not wise to make big long bets, but I think that opportunity may well arise toward Labor Day," he said.

In the meantime, any sign that fears may have been overblown could spur a rally. The final reading on first-quarter U.S. gross domestic product, due on Friday, is forecast at a 1.9 percent annual growth rate, a Reuters poll of economists showed. That's slightly above previous estimates. But investors will be on the lookout for a surprise.

"People are not expecting a lot from GDP so should it come a little better than expected, you could see a pretty decent rally," said King Lip, chief investment officer of Baker Avenue Asset Management in San Francisco.

Some analysts attribute much of the market's turmoil to the end of the Federal Reserve's asset-purchase program, known as quantitative easing, or QE2. That will come to a close at the end of the month.

Investors will be looking to Chairman Ben Bernanke to reassure markets after the Fed's two-day meeting ends on Wednesday.

"What investors are really looking for is not a QE3 but a QE2.5, where (the Fed) continues to reinvest the coupons they get from the bonds they purchased," Lip said. "If that's the case, investors will look well on that."

The CBOE Volatility Index or VIX, a gauge of investor anxiety, spiked during the week, but it is still at relatively depressed levels. That could be a sign investors are still too complacent about the risks ahead.

"If the economy is slowing as much as people are thinking, should there be more risk to second-quarter earnings? That's a real question we have to ask," Doll said. "There is risk of complacency -- no question."

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

Names, birth dates, e-mail addresses and encrypted passwords of users of Sega Pass online network members had been compromised, Sega said in a statement, though payment data such as credit card numbers was safe. Sega Pass had been shut down.

"We are deeply sorry for causing trouble to our customers. We want to work on strengthening security," said Yoko Nagasawa, a Sega spokeswoman, adding it is unclear when the firm would restart Sega Pass.

The attack against Sega, a division of Sega Sammy Holdings that makes game software such as Sonic the Hedgehog as well as slot machines, follows other recent significant breaches including Citigroup, which said over 360,000 accounts were hit in May, and the International Monetary Fund.

The drama surrounding the recent round of video game breaches paled compared to what PlayStation maker Sony Corp experienced following two high-profile attacks that surfaced in April.

Those breaches led to the theft of account data for more than 100 million customers, making it the largest ever hacking of data outside the financial services industry.

Sega Europe, a division of Sega that runs the Sega Pass network, immediately notified Sega and the network customers after it found out about the breach on Thursday, Nagasawa said.

Lulz Security, a group of hackers that has launched cyber attacks against other video game companies including Nintendo, has unexpectedly offered to track down and punish the hackers who broke into Sega's database.

(Reporting by Yoko Kubota; Editing by Nick Macfie)