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A lack of progress on some of the economy's biggest issues -- from sovereign debt in Europe to growing signs the U.S. economy is in danger of slipping back into recession -- will drive more uncertainty and moves from one extreme to another.

However, with the S&P 500 down 17.6 percent from its 2011 high, many investors say a bottom could be near and bargain hunters could trigger at least a momentary bout of buying.

"We're not even close to the end of volatility, but given a decline of almost 17 percent in 13 days, we could see a rise from these levels," said Mike Gibbs, chief market strategist at Morgan Keegan in Memphis, Tennessee.

"If there's something major with the European situation, that could be a catalyst for value investors to come back in."

The situation in Europe has been dictating much of the market's recent movement. On Tuesday, shares fell after a meeting between the heads of France and Germany failed to squelch fears about euro-zone leaders' ability to contain the region's debt issues, which could impact global growth and the profit outlooks of U.S. banks.

Market participants will also be looking ahead to comments from Federal Reserve Chairman Ben Bernanke at the central bank's annual meeting in Jackson Hole, Wyoming, on Friday.

The Fed recently pledged to keep interest rates "exceptionally low ... at least through mid-2013," news that sparked a short-lived rally, suggesting that there may be little new information coming out of the Jackson Hole meeting that could move markets.

"There's nothing Bernanke can do that's likely that will help stocks," said Matt McCormick, a money manager at Cincinnati-based Bahl & Gaynor Inc, which has $3.2 billion in assets under management.

"If you see potential bank problems out of Europe before then, he might have some ammo for another round of quantitative easing, but absent that, investors hoping for an August surprise will likely be disappointed."

AN ATTRACTIVE YIELD

The S&P 500 fell 4.7 percent this week, extending losses of 12.4 percent over the previous three weeks, its worst streak of that length in 2-1/2 years.

The CBOE Volatility Index, also known as the VIX, is up 20 percent this week.

In a note, Birinyi Associates wrote that while the market remained difficult in the short term, there were indications that stocks were attractively valued.

Noting that the S&P 500 was 10 percent below its 50-day moving average, Birinyi said, "This is the most oversold the market has been" since March 2009.

Birinyi pointed out that the 2.25 percent dividend yield on the S&P 500 was higher than the 10-year U.S. Treasury note's yield, making this "only the second period since the 1950s where stocks have yielded more than bonds."

DOING THE EUROPEAN "LOCK-STEP"

Issues in Europe may take on outsized influence next week as the U.S. earnings season draws to a close, with Tiffany & Co and Applied Materials among the few S&P 500 companies on tap to report.

Earnings, while often overshadowed by macroeconomic themes, have largely come in stronger than expected, giving investors at least one reason for optimism.

Next week, investors will have plenty of U.S. economic indicators to watch, including the release of data on new home sales data, durable goods orders, consumer sentiment and gross domestic product. Should the data follow the recent trend of weak reports, which have contributed to the growing sense that growth will be muted, it could cause further selling.

"There's still something of a sense that this is just a weak patch in the economy, but prolonged weak data would point more definitely to a double dip," said Marc Scudillo, managing officer at EisnerAmper in New York. "There's a good floor to the S&P 500 at 1,100 right now. If we go under that, there's room to move even further to the downside."

While U.S. growth concerns remain a primary focus for investors, the issues in Europe are seen as the primary driver of the U.S. stock market in the near-term.

On Tuesday, markets fell as the leaders of France and Germany failed to discuss boosting the size of the euro zone's rescue fund or the sale of euro bonds, though they detailed closer euro-zone integration. Many investors believe more aggressive policies are needed to restore stability to the area.

"What I'm seeing right now is a basically a crisis of confidence, more so than an economic crisis or financial crisis necessarily at this stage," said Natalie Trunow, chief investment officer of equities at Calvert Investment Management in Bethesda, Maryland.

Trunow, who helps oversee about $14.8 billion in assets, cited "the inability by policy-makers to come to a good path" as the reason for the uncertainty.

Morgan Keegan's Gibbs said that the endgame in Europe was that "if confidence doesn't return, we'll continue to see the S&P essentially moving in lock-step with European markets."

(Reporting by Ryan Vlastelica; Editing by Jan Paschal)

Gross, the co-chief investment officer at Pacific Investment Management Co., which oversees $1.2 trillion, also told Reuters Insider television the U.S. is running out of monetary and fiscal policy options.

"It is increasingly apparent to us that policy options are limited and that economic growth is slowing down," said Gross said.

Thursday, Morgan Stanley warned in a research report the United States and euro zone are "dangerously close to recession," joining a number of firms that have slashed forecasts for global growth in the second half of the year. Not only are economists and investors bracing for a slowdown in the U.S., they are concerned about a deceleration in China's growth rate to persistent sovereign-debt turmoil in Europe.

Morgan Stanley cut its global GDP forecast to 3.9 percent growth from 4.2 percent for 2011, and to 3.8 percent from 4.5 percent for 2012.

"There's no doubt that (U.S.) growth from the standpoint of employment or unemployment and growth from the standpoint of corporate profits is definitely a risk -- whether or not we see a positive 1 percent real GDP number I think is besides the point."

Gross said low Treasury yields are flashing recessionary conditions.

"They certainly reflect, in terms of their yields, not only a potential for a recession but the almost high probability of recession and the result of lowering of inflation -- that is key."

On Thursday, the yield on the benchmark 10-year U.S. Treasury note dropped below 2 percent to 1.98 percent. Friday, the 10-year yield stood around 2.08 percent.

In May, Gross told Reuters the only way he would purchase Treasuries again is if the United States heads into another recession.

Gross, who manages the $245 billion Total Return Fund, reiterated that sentiment on Friday: "I don't think there is any value there unless you see a recession."

For more from the Interview, please click on insider.thomsonreuters.com/

(Reporting by Daniel Burns, Burton Frierson and Jennifer Ablan; Editing by Neil Stempleman)

Belgian Finance Minister Didier Reynders said the bloc should issue common euro bonds and expand its bailout fund to calm repeated market selloffs of government bonds and bank shares of vulnerable debtor countries.

Germany has led resistance to both proposals. Belgium's support for bonds promoted by high-debt nations such as Italy and backed by some European Commission officials will not necessarily tip the balance.

But Reynders' call in the Financial Times for the euro zone had to prove it had "deep pockets" underlined increasing fears among euro zone governments that they would be unable to reassure investors that euro zone banks are safe without drastic action by the 17-nation bloc.

Merkel repeated her criticism of proposals for euro zone bonds, telling a rally of her Christian Democrats this was a "slippery slope" that would probably leave everyone worse off.

"Euro bonds would not allow any rights at all to intervene to force discipline on others," she said.

French Prime Minister backed her view, writing in an editorial published in daily Le Figaro that common euro zone bonds without further fiscal consolidation could threaten France's triple-A credit rating.

Bickering over the latest Greek bailout and lingering disappointment over Wednesday's Franco-German summit helped drag European shares to near two-year lows on Friday.

Fears that major world economies are heading for recession are adding to worries that euro zone banks face short-term funding troubles, losses from sovereign debt and weak trading income.

Greece, at the center of the euro zone debt storm, also announced its economy would shrink by more than previously thought -- by 4.5 percent this year against an earlier estimate of 3.8 to 3.9 percent.

"The best way to resolve a debt crisis is to grow out of it so a recession certainly would not help. I think the confidence element is very important now," said ING economist Martin van Vliet. "It's time to break the downward spiral of a self-fulfilling recession. We are in that stage right now."

Spain's announcement of further austerity measures and a move to support its stricken housing market, aimed at showing it was working hard to stay out of the debt crisis, had little market impact.

BAILOUT SQUABBLE

Market impatience with the pace and complications of euro decision-making has been heightened by a rush by smaller euro economies to demand collateral from Greece in return for contributing to its bailout fund, and Austria sought on Friday to resolve that dispute.

The collateral demand, first made by Finland, has ruptured the common line found at the July 21 summit, particularly after Austria, the Netherlands and Slovakia said on Thursday they deserved the same treatment.

Dutch finance minister Jan Kees de Jager described as "very complicated" Austria's proposal that more collateral should be available to countries whose banks and insurers were less exposed to Greece.

Marco Valli, chief eurozone economist at UniCredit, said that Europe needed more than ever to be speaking with one voice.

"If you want to sell your pact to save Greece then you should not be fighting about this. It undermines the credibility of the package," he said.

For markets though, the issue of collateral may be more of a sideshow compared with the debate on additional support for the zone.

Germany, the euro zone's chief paymaster, has repeatedly opposed a big increase in the bailout fund and says that common euro zone bonds would remove incentives for fiscal prudence, rewarding profligate nations.

European Central Bank heavyweight Juergen Stark described jointly issued bonds on Friday as a "false solution."

Even so, BNP Paribas Chief Eurozone Market Economist Ken Wattret said he believed euro zone leaders would ultimately agree to launch common bonds and to increase the bailout fund.

"It would be helpful for markets if the EFSF were increased now, but the political reality is that this is unlikely to happen until at least later in the year," he said.

(Additional reporting by Sara Webb in Amsterdam, Stephen Mangan in London, Petra Wischgoll in Hameln, Germany, Marc Angrand, Nicholas Vinocur in Paris)

At least two brokerages downgraded the company's stock, mainly citing the uncertainty and expenses that will accompany the transformation the company is planning.

"HPQ is undergoing a sound strategy transformation by focusing on high-growth, high-margin opportunities in the enterprise/commercial markets," Gleacher and Co said in a note.

"However, we materially underestimated the magnitude and timing of this metamorphosis, i.e. IT service margin decline, challenged storage growth."

The brokerage cut its price target on the HP stock to $39 from $50, but maintained its "buy" rating.

HP also stopped production of its WebOS-based TouchPad tablet product, which failed to find favor with buyers, and said it will buy British software company Autonomy Corp to boost its cloud business.

Cypress Semiconductor Corp, which is the main supplier of touch controllers for the TouchPad, will also hurt if the company pulls the plug on the product, brokerage Collins Stewart said.

HP, which for years represented everything Silicon Valley, has been struggling with its once hugely popular PC business, with niftier gadgets like Apple's iPad eating into market share.

HP's weak forecast follows smaller rival Dell Inc's lowered revenue outlook earlier this week that dragged down both stocks.

Both companies have been venturing out of traditional comfort zones and into enterprise solutions and services, but continuing soft sales to enterprises and consumers alike have been a constant source of trouble.

"Last night HP may have eroded what remained of Wall Street's confidence in the company and its strategy," Needham & Co said in a research note to clients.

Brokerage Robert W. Baird said HP is no longer a "safe haven" stock and expects it to lose market share to Dell and others with the decision-making process taking 12-18 months.

HP's decision to spin off the PC business reflects commoditization, as consumers change the use of computers, and this may hurt Intel, the world's largest supplier of PC chips, brokerage Nomura said in a note.

"A reversal in average selling prices would remove a key revenue driver over the last six quarters (for Intel)."

Shares of Palo Alto, California-based HP were down more than 15 percent at $24.96 in heavy trading before the bell. They closed down more than 6 percent at $29.48 on Thursday on the New York Stock Exchange.

(Reporting by Sayantani Ghosh and Rachel Chitra in Bangalore; Editing by Don Sebastian and Joyjeet Das)

Futures for the S&P 500, for the Dow Jones and for the Nasdaq 100 were down by between 1.7 and 2.0 percent.

Economic Cycle Research Institute (ECRI) releases at 10:30 a.m. EDT its weekly index of economic activity for August 12. In the prior week the index read 127.9.

Bank of America is cutting 3,500 jobs this quarter according to an internal memo, as the biggest U.S. bank grapples with its $1 trillion problem-loan portfolio and growing economic concerns.

Hewlett-Packard Co may spin off the world's largest PC business, part of a series of moves away from the consumer market, including killing its new tablet device and buying British software company Autonomy Corp for as much as $11.7 billion.

Autonomy shares surged 76 percent.

China's vice president and heir apparent gave a ringing endorsement of the resilience of the debt-ridden American economy during a second day of talks with his U.S. counterpart Joe Biden.

Brent crude fell below $106 a barrel, extending the previous session's plunge, on renewed fears of weak demand following a slew of lackluster data from the world's top oil consumer, the United States.

European shares extended the previous session's steep decline on worries that major economies could be headed into recession. The FTSEurofirst 300 index of top European shares was last down 3.6 percent after falling 4.8 percent on Thursday, its biggest one-day decline since March 2009.

Gold hit a record high above $1,850 an ounce as investors reached for the safety of bullion amid a worsening economic outlook for the United States and concern about the health of Europe's banks.

The Nikkei stock average fell 2.5 percent for its third straight day of declines, hurt by U.S. recession fears and an earthquake that rattled northeast Japan in late trade, but the benchmark managed to hold above lows marked earlier this month.

(Reporting by Atul Prakash)

Swiss banking software maker Temenos' shares rose 4.7 percent in early trading, Germany's Software AG rose 2.5 percent and British IT company Micro Focus rose 0.9 percent.

Rajeev Bhal, software analyst at British financial services firm Matrix Group, said he saw Micro Focus and Temenos as likely targets but not Software AG or British accounting software maker Sage, which he saw as "red herrings."

"We continue to see Micro Focus (BUY, 420p TP) as a likely bid candidate given multiple approaches already in place and the attractive valuation," he wrote.

"Temenos has a strong product and routinely tops industry league tables for new customer wins, and has demonstrated in the past its ability to recover from setbacks."

HP said late on Thursday it was in talks to buy Autonomy and to spin off its personal computer business, the world's largest, beginning a reinvention of itself as a higher-margin, software-focused business.

Shares in Autonomy itself leapt 75 percent to a 10-year high of 2,500 pence, below HP's bid of 2,550 pence per share, which represents a premium of 79 percent to Thursday's closing price. Autonomy has recommended the bid.

Shares in British chip designer ARM, which like Autonomy is part of a technology cluster in the English university town of Cambridge, also rose 2.9 percent.

(Reporting by Georgina Prodhan; Editing by Andrew Callus)