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But gains coming from healthcare, staples or other defensive sectors that have outperformed the market in the last several months would only support the notion that the U.S. stock market needs to complete its correction phase and panic selling must occur before a more sustained comeback develops.

"We want to see more fear," said Ari Wald, equity strategist at Brown Brothers Harriman in New York.

But be careful what you wish for.

The sources of the recent decline, including Greece's slow march toward a default on its debt, weak U.S. economic data and the creeping deadline to lift the U.S. debt ceiling, are far from being resolved.

HOLDING THE 200-DAY SHOWS THE WAY

Despite a drop that dragged the S&P 500 as much as 8.2 percent below its three-year high hit in early May, the index held above its 200-day moving average -- a major line in the sand as the bulls and bears battle for control of the market.

The slide had been telegraphed for weeks and the market's by-the-book performance -- pulling back to a widely followed level -- seems too well choreographed for some analysts.

"The fact that we went to the 200-day ... seems just a little too perfect," said Marc Pado, U.S. market strategist at Cantor Fitzgerald & Co in San Francisco.

He said the timing of the move was supportive, as the market creates a technical base before resuming its upward move on the back of strong earnings.

"You might get an attempt at a shakeout move," Pado said. "But sometimes the majority is right."

Even if they are right, they don't seem too convinced. So far this quarter -- on track to be the first in the red for the S&P 500 in the last year -- daily volume on the New York Stock Exchange, NYSE Amex and Nasdaq has averaged 7.22 billion shares.

That is down from the 7.94 billion shares traded daily during the first quarter, when the S&P 500 gained 5.4 percent. Commitment to the market has waned. The frantic selling, the flushing down of day traders seems absent so far in this corrective phase.

Despite holding above that level, the market has not cleared the danger zone of dipping under its 200-day average. The curve has a steep slope, as the S&P 500 took roughly two years to notch a 100 percent advance from its March 2009 lows.

The 200-day moving average now stands at 1,263.47, less than 0.4 percent below the S&P 500's close on Friday.

"Every time you test a resistance or support level, you make it weaker," said Nicholas Colas, chief market strategist of the ConvergEx Group in New York. "It's almost like a piece of metal. Every time you hit it, it grows more fragile and that's why people are really worried the third or fourth time."

After three straight days of declines, the S&P 500 fell 0.24 percent for the week and finished at 1,268.45 -- its seventh decline in the last eight weeks.

The Dow industrials lost 0.58 percent for the week, closing on Friday at 11,934.58, while the Nasdaq Composite rose 1.39 percent for the week to end at 2,652.89.

The next two weeks, before quarterly earnings season starts in earnest, could be marked by wild swings like the ones seen recently. On Thursday, after a market-friendly headline out of Greece, the S&P 500 posted its strongest comeback in almost a year, on days when the benchmark has fallen more than 1 percent.

From its session low on Thursday, the S&P 500 climbed more than 20 points into the close. The Dow's swing covered 233.79 points from its intraday low to session high on Thursday.

But buying interest waned on Friday. Aside from doubts about the passage in Athens' Parliament of higher taxes and service cuts, weak Italian banks also are scaring investors.

The Federal Reserve on Wednesday gave a bleak outlook on the economy, lowering its forecasts for GDP growth for both 2011 and 2012. And Fed Chairman Ben Bernanke found it hard to explain the sources of a so-called economic "soft patch" that seems to have become pervasive.

SUMMER STORM OF DATA

Besides the weekly jobless claims numbers, housing and manufacturing data will attract the most attention next week.

The S&P Case-Shiller April home prices index on Tuesday and the National Association of Realtors pending home sales for May on Wednesday could confirm the housing market's double dip.

Factory activity grew in May at its slowest pace since September 2009, according to the Institute for Supply Management, and Friday's ISM number for June is expected to drop to 51.9, indicating an even slower rate of growth.

New applications for unemployment insurance on Thursday are expected to land above 400,000 for a 12th straight week, according to economists polled by Reuters.

Personal income and consumption, out Monday, are expected to tick higher in May. Consumer confidence, out Tuesday from the Conference Board, is forecast at a June reading of 60.5, just a touch lower than May's 60.8, a Reuters poll showed. Despite a recent string of weak data in May, a sharp drop in crude oil prices is expected to buoy consumer confidence.

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

Durable goods orders increased 1.9 percent after dropping 2.7 percent in April, the Commerce Department said on Friday.

Economists had expected orders to rise 1.5 percent in May.

Durable goods orders are a leading indicator of manufacturing health.

An improvement across the board in May and revisions to April's figures, which showed smaller declines than previously reported, pointed to underlying strength in a sector that has powered the economic recovery.

The report came as a relief to investors after recent regional factory data had shown some signs of fatigue. Supply chain disruptions after the March earthquake and tsunami in Japan are constraining manufacturing.

The report was "a little better than you might have expected given the gloomy news that's coming out of the manufacturing surveys. So that's a small plus," said Nigel Gault, chief U.S. economist, IHS Global Insight in Lexington, Massachusetts.

U.S. stocks extended gains on the data, while prices for Treasury debt fell.

The report also supported views the sluggish economy would regain momentum in the second half of the year.

The economy grew at an annual rate of 1.9 percent, the department said in another report, up from the previously estimated 1.8 percent. The revision was in line with economists' expectations.

The economy expanded at a 3.1 percent rate in the fourth quarter.

Orders were a buoyed by a 36.5 percent jump in volatile aircraft bookings. Boeing received 27 aircraft orders, up from just two in April, according to information posted on the plane maker's website.

Motor vehicle orders rose 0.6 percent after plunging 5.3 percent the previous month, suggesting some improvement in auto production, which has been hit by a shortage of parts from Japan.

Excluding transportation, durable goods orders increased 0.6 percent after a revised 0.4 percent decline in April, previously reported as a 1.6 percent fall. Economists had expected this category to rise 0.9 percent.

Outside of transportation, orders for machinery, primary metals, capital goods, computers and electronic products all rose.

Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending, rebounded to increase 1.6 percent last month after a revised 0.8 percent fall in April.

Economists had expected a 1.0 percent increase from a previously reported 2.3 percent drop.

Shipments of non-defense capital goods orders excluding aircraft, which go into the calculation of gross domestic product, increased 1.4 percent after falling 1.5 percent in April.

(Reporting by Lucia Mutikani; Editing by Neil Stempleman)

The bank dismissed Alex Bernand after a quick internal investigation prompted by the employee's complaint led to the discovery of improper trading in one of Bernand's personal brokerage accounts, according to documents seen by Reuters and interviews with people familiar with the situation.

The documents, part of a Sarbanes-Oxley whistleblower action filed against Deutsche in May 2010 by the employee in New York, also reveal that the Securities and Exchange Commission opened an inquiry last year into a related allegation that some of the assets in the derivatives portfolio overseen by Bernand may have been improperly valued in order to hide trading losses.

Deutsche bank spokeswoman Renee Calabro declined to comment on Bernand's dismissal. But she said the allegation that some assets in the bank's derivatives book had been improperly valued was investigated by the bank and is "wholly unfounded."

The SEC investigation and Bernand's October 2009 firing, neither of which has been previously reported, come as Deutsche is aggressively winding down the portion of its derivatives trading business that Bernand had overseen. Earlier this month, the bank reported in an investor presentation that its plan to unwind its "high-risk" credit correlation portfolio "is well ahead" of schedule. The bank first announced a plan to begin "de-risking" some of its derivatives trading desks in late 2008.

In January, Deutsche settled the whistleblower case by agreeing to pay $900,000 to trader Matthew Simpson and promoting him to managing director shortly before he voluntarily agreed to leave the bank in April. It was the largest Sarbanes-Oxley whistleblower settlement for a complaint filed in 2010. Simpson, who now works for Rochdale Securities in Stamford, Connecticut, did not return a phone call seeking comment.

UNFOUNDED ALLEGATION

"This complaint, which is over a year old, has been the subject of a thorough investigation, and we believe that any allegations about financial misreporting are wholly unfounded," said Calabro, who declined to comment on the terms of the settlement with Simpson. "The bank is cooperating with the SEC on its review of the matter."

An SEC spokesman declined to comment.

Bernand, who lives in France, also declined to comment. On his LinkedIn profile, Bernand describes himself as an "independent philanthropy professional."

Simpson's and Bernand's names were redacted from the whistleblower documents seen by Reuters, but their identities were confirmed by two people familiar with the situation.

In its settlement agreement with Simpson, Deutsche also denied "any wrongdoing in connection with the matter." In light of the settlement, the U.S. Department of Labor in February closed its investigation into Simpson's claim that he had been retaliated against by some of his superiors for bringing the allegations of improper trading to the attention of the bank's compliance department.

The firing of Bernand, a one-time rising star in the derivatives world, is something of an embarrassment for Deutsche. In 2006, the bank issued a press release to trumpet his hiring from Bank of America as its global head of credit correlation. At BofA, Bernand had pretty much built the Charlotte, North Carolina-based bank's structured credit trading business from scratch.

Inside Deutsche, the portfolio that Bernand oversaw from London was called the "exotics book," because many of the derivatives in the portfolio were tied to complex securities. At its peak, the portfolio was one of the largest on Wall Street with the assets underlying the trades valued in the tens of billions of dollars.

ILLUSORY PROFITS

The bank's credit correlation desk specialized in using credit default swaps to make proprietary trades that were aimed at hedging some of the bank's exposure to potentially risky corporate bonds, leveraged loans, currencies, indexes and commercial paper. Many of the trades put on by correlation traders involve synthetic collateralized debt obligations (CDOs), financial instruments that use credit default swaps to get exposure to various bonds and other assets.

Some have blamed credit default swaps -- a type of derivative that is supposed to provide a level of insurance against an underlying asset going bad -- with exacerbating the global financial crisis because they increase the level of risk on balance sheets of the world's major banks. However, the synthetic CDOs traded by the correlation desk were not like the more popular variant of CDOs which were stuffed with subprime mortgage securities.

Janet Tavakoli, a Chicago-based derivatives consultant who has written several books on credit derivatives and structured products, said many bank managements did not fully appreciate the illusory nature of the trading profits being generated from derivatives correlation desks before the financial crisis. She said those profits often disappeared and turned into losses when the underlying assets turned south.

"The thing about correlation desks is that it will appear you are making a lot money from trades, but it is all money at risk," said Tavakoli. "I call this kind of trading an invisible hedge fund."

In an early 2010 regulatory filing, Deutsche attributed some of the rise in the bank's value-at-risk, or VAR, at the end of 2009 to a "recalibration of parameters in the Group's credit correlation business."

On Wall Street, VAR is one metric used by a bank to estimate how much money it could conceivably lose in a day if all of its trading bets and hedges went awry. It's an imperfect measurement, but one followed by most industry analysts.

A person familiar with Deutsche said the bank is winding down the credit correlation desk to both reduce its risk profile and better comply with the so-called Volcker Rule's ban on proprietary trading in the United States.

The bank's internal investigation into Simpson's allegations was overseen by the big New York law firm Fried Frank.

The revelation that the SEC is investigating the valuations used for some of Deutsche's derivatives portfolio comes at an awkward time. Over the past few months, the bank has taken some high-profile lumps for its role in contributing to the financial mess.

A Senate report released in April faulted Deutsche for continuing to churn out collateralized debt obligations and other securities backed by subprime mortgages even as the housing market in the United States was starting to crumble. The report from the Senate's Permanent Subcommittee on Investigations said Deutsche aggressively marketed CDOs to its client, "despite the negative views of its most senior CDO trader" about the failing health of the housing market.

Just last month, federal prosecutors in New York filed a civil suit against Deutsche, claiming its MortgageIT subsidiary repeatedly lied about the quality of the mortgages it was issuing to obtain federal guarantees on those iffy home loans. The government seeks to recoup some $1 billion in losses it incurred from insuring the mortgages. Deutsche contends most of the problem loans were issued before the bank acquired MortgageIT in 2007.

Before filing his whistleblower complaint last May, Simpson had built a long track record at Deutsche. Over the dozen years he worked for the bank in New York, he held positions in finance, risk management and then trading. He joined the firm's correlation trading group in 2008 and was responsible for trading derivatives tied to bonds and currencies.

In his whistleblower complaint, Simpson said when he reported his concerns about trading improprieties to Deutsche's compliance department he "expressed concerns for future retaliations."

Among the acts of retaliation that Simpson alleged were being passed over for a promotion in February 2010 and later "stripped" of all his trading and management responsibilities. Calabro said the bank denies Simpson's claim of retaliation.

(Reported by Matthew Goldstein; Editing by Michael Williams and Claudia Parsons)

Nearly 30 percent of the day's volume traded in the last hour. That coincided with the market's turnaround and the news out of Greece, which set the stage for a resolution to Athens' credit problems that have hurt investor sentiment around the globe.

"The agreement on the austerity plan, that's really what got the market going," said Paul Hickey, co-founder of Bespoke Investment Group in Harrison, New York.

The question now remains whether the late-day surge is a precursor to renewed buying interest or if it was just an interruption before selling returns in coming days.

"We're going headline to headline, which is typical of a market pullback," Hickey said. "There's not a whole lot of tangible evidence for investors to move on right now."

The S&P 500 came within less than a half point of its 200-day moving average -- a line the bulls have been able to hold since last September. Technical analysts monitor that level as an indication of the long-term trend, and a consistent close below it could trigger more selling.

"It's definitely positive and encourages people," Hickey said.

Sources with knowledge of the talks told Reuters that Greece has won the consent of a team of European Union and International Monetary Fund inspectors for its new five-year austerity plan after committing to an additional round of tax increases and spending cuts.

The Dow Jones industrial average .DJI dropped 59.67 points, or 0.49 percent, to end at 12,050. The Standard & Poor's 500 .SPX lost 3.64 points, or 0.28 percent, to 1,283.50. But the Nasdaq Composite .IXIC gained 17.56 points, or 0.66 percent, to close at 2,686.75.

A Bespoke analysis showed the S&P 500 posted the strongest comeback in almost a year, on days when the benchmark has fallen more than 1 percent. From its session low, the index climbed more than 20 points into the close.

The Dow's swing covered 233.79 points from intraday low to session high. For the second straight day, the Nasdaq managed to end the session in positive territory for the year.

MICRON AND ORACLE FALL LATE

After the closing bell, Micron Technology (MU.O) shares tumbled nearly 13 percent as the company's quarterly revenue fell below expectations.

Oracle Corp (ORCL.O) shares dropped 3.3 percent in extended trading as investors were disappointed that its profit beat estimates by a narrower margin than in recent quarters.

Earlier in the day, markets had sold off during the regular session as oil's slide to a four-month low triggered declines in a market already hurting after Federal Reserve Chairman Ben Bernanke's comments on Wednesday about a slowing economic recovery.

Skepticism remained despite the Greek deal as details were not yet known and any agreement would still have to win a vote in Parliament.

"When it's 3 o'clock on a Thursday afternoon and short-sellers see that (Greece deal) headline, they cover first and ask questions later," said Peter Boockvar, equity strategist at Miller Tabak & Co in New York.

He said since there was already a plan awaiting a vote, the difference could be a change in terms that could make it easier to pass in the Athens Parliament next week.

U.S. crude oil futures settled at $91.02 a barrel, down $4.39 or off 4.6 percent, after the International Energy Agency said it will release 60 million barrels of oil from strategic stockpiles. For details, see <O/R>

The slide in the price of oil was exacerbated by a 0.7 percent climb in the U.S. Dollar Index .DXY, which tracks the greenback's performance against a basket of major currencies. In times of stress, the flight to safety that pushes the dollar higher makes oil more expensive, further sapping demand for crude and other commodities priced in dollars.

Giving some support to the market, tumbling oil prices lifted an index of airlines' stocks .XAL by 2.4 percent.

Bets that lower prices at the pump will open consumer's wallets boosted the S&P retail sector index .RLX by 1.4 percent.

S&P BOUNCES OFF KEY SUPPORT

The S&P 500's bounce off its 200-day moving average was the second in a week. Last Thursday, a brush with that level enticed buyers and the benchmark index closed in the black for the day. The 200-day moving average now coincides with the 2010 intraday high of 1,262.60, giving it extra technical support.

"What it means is that if you do momentum trading, you can place bets, and a lot of big money is doing momentum trading," said George Feiger, CEO of Contango Capital Advisors in San Francisco.

"But the big picture story remains the same. We are looking at small growth and very small return in equities for the coming years."

His view differs from the median of 46 equity strategists surveyed in the last week, which showed an expectation of an 11 percent gain in the S&P 500 for the year, which would take it to 1,400.

On the economic front, U.S. claims for unemployment benefits rose more than expected last week, suggesting little improvement in the labor market. Other data showed sales of new homes fell in May. <ID:N1E75M08F>

About 8.31 billion shares traded on the New York Stock Exchange, NYSE Amex and Nasdaq, above the daily average so far this year of 7.57 billion.

Declining stocks outnumbered advancing ones on the New York Stock Exchange by a ratio of 17 to 13. But on the Nasdaq, about seven stocks rose for every six that fell.

(Reporting by Rodrigo Campos; Additional reporting by Ashley Lau; Editing by Jan Paschal)