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More volatility is almost guaranteed after the top German official at the European Central bank quit and rumors circulated throughout global markets that Greece will default this weekend. Greece later called the rumor market speculation designed to hurt the euro.

Recent market trading patterns and options activity also suggest August's roller-coaster ride will keep apace throughout September.

Juergen Stark's sudden resignation from the ECB on Friday came after a conflict over the bank's policy of buying government bonds to combat the euro zone's debt crisis, raising questions about a program that has been a key market stabilizer in recent months.

"You can tie our stock market directly to European banks -- the problem they have is sovereign debt exposure," said Jack de Gan, chief investment officer at Harbor Advisory Corp in Portsmouth, New Hampshire.

In a light week for earnings with only electronics retailer Best Buy Co Inc and diversified manufacturer Pall Corp among S&P 500 companies set to report, investors will eye a batch of data for any clues the economy has regained its footing. Economic readings over the past two months have left little reason for optimism.

But the euro zone, where a two-year sovereign debt crisis has unsettled investors worldwide, will be the real focus.

De Gan noted the ECB's critical role in potentially solving the sovereign debt issue, highlighting the implications for global markets on any reports of internal turmoil.

"Europe matters right now -- the ECB resignation, Trichet's keeping rates flat as opposed to outright cutting them," said Phil Orlando, chief equity market strategist, at Federated Investors, in New York. "There are rumors I can't substantiate, but the rumors are still out there that this is the weekend Greece goes bust.

"So certainly, Europe is going to capture our attention," Orlando said.

Data on tap for next week includes retail sales along with the consumer price and producer price indexes for August. Also expected are regional manufacturing surveys by the Philadelphia Federal Reserve Bank and by the New York Federal Reserve Bank, both of which showed contractions in factory activity last month.

"Each bit of this data theoretically gets us down the road to understanding what the true state of the economy is. I expect overreaction to rule the day," said Kim Caughey Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh.

At the same time, the benchmark S&P 500 has been mired in a range of about 100 points -- between 1,120 and 1,220 -- for the past month, leaving the market susceptible to wide swings on a daily basis.

"We are just kind of in this nowhere zone," said Ken Polcari, managing director at ICAP Equities New York.

"We haven't broken through to the downside but nor have we broken it to the upside. So what you are going to continue to get is this erratic movement in the market until at some point, it's going to have break out one way or the other."

The continued rise in the CBOE Volatility index also points to large moves in the market. The index rose nearly 20 percent to top the 40 level for the first time since August 26, indicating a rise in investor skittishness.

"I expect high volatility next week, big swings to the upside and downside. The VIX is quite high and pretty elevated," said Randy Frederick, director of trading and derivatives at Charles Schwab & Co in Austin, Texas.

"When the VIX is rising the way it is, that generally means the puts are going up too."

(Additional reporting by Angela Moon and Rodrigo Campos; Editing by Leslie Adler)

China's exports rose 24.5 percent in August from a year earlier, accelerating from the 20.4 percent rise in July, the customs administration said on Saturday.

The export growth was stronger than expectations of 21.6 percent.

But month-on-month figures showed exports cooled a bit in August, when debt worries in the United States and Europe fanned fears of a renewed global downturn. In U.S. dollar terms, China's exports totaled $173 billion in August, down from July's record high of $175 billion.

Imports grew 30.2 percent in August over a year earlier, overshooting expectations for 21.5 percent. Robust imports should comfort investors looking to China to pick up some slack in global demand as other major economies sputter.

That left the country with a trade surplus of $17.8 billion

in August, down 43 percent from in July, when the surplus was $31.5 billion. Economists had expected a surplus of $25.1 billion for August.

"The European debt crisis and slowing U.S. growth will be reflected in China's export data in the next few months. I expect Chinese export growth to be below 10 percent in the fourth quarter," said Shen Jianguang, an economist with Mizuho Securities Asia in Hong Kong

"Strong import growth is driven by China's strong demand for consumer goods, luxury items, iron ore, crude oil, soy as well as corn," he said.

Despite the quickening pace in August, China's export growth has slowed from the 37.7 percent pace in January, suggesting China's economy is not immune to global headwinds.

Chinese exporters have tried to expand their market shares in developed economies and diversify into fast-growing emerging markets, though they face increased challenges from rising costs and a firmer yuan.

North America and Europe have generated less than 40 of China's overseas sales this year, down from 55 percent in 2002, according to analysts at Macquarie.

The narrower trade surplus will help China's fight against inflation, Huang Guohua, an official at the customs agency, told state television.

Data on Friday showed China's inflation pulled back in August from a three-year high while economic activity slowed, underlining expectations that the central bank can hold off on further tightening of monetary policy in the face of a global economic slowdown.

(Reporting by Langi Chiang and Kevin Yao; Editing by Emily Kaiser)

The resignation of Juergen Stark from the ECB throws into question policymakers' ability to deal with Europe's debt crisis, a problem that could engulf a world economy already teetering on the brink of recession.

Investors' rising fears were highlighted by a 12 percent jump in the market's main measure of expected turbulence, the VIX volatility index .VIX. The VIX neared 40, close to its highest level this year, as it marked its biggest jump in three weeks.

"Stark's resignation is suggesting that there is a lot of pressure being built in the senior levels in the ECB," said James Dailey, portfolio manager of TEAM Asset Strategy Fund in Harrisburg, Pennsylvania. "There is an increasing realization that this is a major solvency issue in the banking system."

Doubts about President Barack Obama's $447 billion stimulus proposal added to the negative sentiment, with investors unconvinced his administration has the tools to revive the flagging U.S. economy.

The sell-off was broad and on solid volume. All 10 S&P sectors were in the red and more than 80 percent of stocks listed on the New York Stock Exchange fell. There were 8.7 billion shares traded on the NYSE, the Nasdaq and the Amex, above the exchanges' 20-day moving average.

Unnerving traders further were unconfirmed terrorism threats against New York City and Washington just ahead of the 10th anniversary of the September 11 attacks.

"There is an extreme amount of negativity," said Sam Ginzburg, a senior trader at First New York Securities.

"In talking to the sell-side desks that we do business with, they're not telling me that there are long-onlys adding to or initiating positions right now," he said.

The Dow Jones industrial average .DJI dropped 303.68 points, or 2.69 percent, to 10,992.13. The Standard & Poor's 500 Index .SPX dropped 31.67 points, or 2.67 percent, to 1,154.23. The Nasdaq Composite Index .IXIC dropped 61.15 points, or 2.42 percent, to 2,467.99.

The ECB has been buying up sovereign bonds to help hold down borrowing costs in some debt-strapped euro zone members, and the program has been considered critical to arresting market contagion. The resignation of Stark, who will step down by the end of the year, may deepen the gulf between the ECB and German guardians of central banking orthodoxy.

At a meeting of finance chiefs from the Group of Seven wealthy nations being held in France, U.S. Treasury Secretary Timothy Geithner on Friday pressed Europe's strongest economies to give "unequivocal" financial support to weaker euro zone states to overcome a debt crisis that threatens the world economy.

The S&P 500 ended the week 1.7 percent lower and is now down 8.2 percent this year.

Shares of some big companies fell after Obama's speech did not address proposals to allow large, multinational companies to repatriate an estimated $1.5 trillion of overseas profits to the United States at a reduced tax rate.

"These are software companies, pharma companies that have billions of dollars stranded overseas," said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. "It's a disappointment that we didn't see a definitive package on bringing those profits back home."

Among stocks that would benefit from such a move, Xerox Corp (XRX.N) fell 5.5 percent to $7.41 and Hewlett Packard (HPQ.N) fell 5.1 percent to $22.65.

Bank of America Corp (BAC.N) officials discussed slashing roughly 40,000 jobs during the first wave of a restructuring, The Wall Street Journal said, citing people familiar with the plans. The shares slid 3.1 percent to $6.98.

McDonald's Corp (MCD.N) fell 4.1 percent to $84.02. The world's largest hamburger chain reported a lower-than-expected rise in worldwide August sales at established restaurants on a steep drop in Japan and a lull in new product launches in the United States.

(Editing by Leslie Adler)

The ECB confirmed Stark would be the second German policymaker to leave the bank this year after Bundesbank chief Axel Weber quit in February -- a move also spurred by his opposition to the bond program.

The bank said Stark had resigned for personal reasons but two sources told Reuters it was related to the bond-buying that has rescued Italy and Spain from crisis over the past month and the euro and European stock markets fell in response.

Bond yield spreads, though, for Europe's struggling periphery were only slightly higher.

Stark's departure would be a severe blow to the ECB, whose experienced president, Jean-Claude Trichet, is due to retire at the end of October. Trichet will be replaced by Mario Draghi, whose native Italy has been under attack from markets.

"This is remarkable," said Manfred Neumann, emeritus economics professor at Bonn University and former thesis adviser to Bundesbank President Jens Weidmann.

"Stark held the same view of the bond-buying as Axel Weber and the current Bundesbank president. It is a position that all the Germans have. This is a sign of huge problems within the central bank. The Germans clearly have a problem with the direction of the ECB."

Stark and Weidmann, together with two other members of the ECB's 23-member Governing Council, opposed the revival of ECB's bond-buying last month.

The ECB reactivated the program after a 19-week pause to help hold down borrowing costs in Italy and Spain.

The ECB is, however, concerned that by buying the sovereign bonds of Italy -- the euro zone's third largest economy -- it is only encouraging the Italian government to slacken efforts to shore up its finances, and has been irritated by flip-flopping in Rome.

Stark, 63, had been a member of the ECB's six-member Executive Board since June 2006 and held the influential economics portfolio.

His term on the board, whose members form the Governing Council along with the 17 euro zone national bank chiefs, was due to run until May 31, 2014.

The news that Stark will resign comes amid sharp criticism of the ECB's actions by some economists and politicians in his native Germany.

Trichet took aim at Germany, France and Italy on Thursday for watering down the budget rules in Europe's Stability and Growth Pact, saying this contributed to the fiscal mess that ultimately pushed the ECB into buying the debt of troubled economies on bond markets.

"If we have embarked into the SMP (bond) program...it was because the governments in question had not behaved properly," he said in an impassioned defense of the ECB's record at its monthly news conference.

(Reporting by Andreas Framke and Alexander Huebner; writing by Paul Carrel)

Concerns also lingered about the euro zone's sovereign debt crisis on worries that policymakers were not taking enough action to boost Europe's economies.

Finance chiefs from the Group of 7 richest nations are set to meet on Friday, and the group is under heavy pressure to take action to revive flagging economic growth and calm the biggest confidence crisis in financial markets since the global credit crunch.

Obama challenged Congress on Thursday to enact tax cuts and new spending to revive a stalled job market, but he faces an uphill fight to win over Republicans.

"The speech was positive, but there are questions about whether it can get through Congress and how it will all be paid for," said Scott Brown, chief economist at Raymond James in St. Petersburg, Florida. "At the same time, while we initially rose on the plan, Europe remains the big, big question for markets."

In China, inflation pulled back in August from a three-year high, while economic activity slowed, underlining expectations the central bank can hold off on further monetary policy tightening in the face of a global economic slowdown.

S&P 500 futures fell 7.5 points and were below fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures slid 53 points and Nasdaq 100 futures lost 2.25 points.

Bank of America Corp (BAC.N) officials have discussed slashing roughly 40,000 jobs during the first wave of a restructuring, the Wall Street Journal said, citing people familiar with the plans. The cuts aim to reduce the bank's workforce of 280,000 over a period of years, the Journal wrote.

A number of brokerages, including Jefferies, cut price targets on Texas Instruments Inc (TXN.N) after the company warned its third-quarter earnings and revenue would be worse than already low expectations as concern about an economic slowdown is stifling demand for products that use its chips.

Shares of TI fell 1 percent to $25.55 before the bell.

McDonald's Corp (MCD.N) fell 2.3 percent in premarket trading after its August restaurant sales rose less than analysts expected.

U.S. stocks closed sharply lower on Thursday after Federal Reserve Chairman Ben Bernanke gave no indications that new stimulus measures were in the works to boost the flagging economy.

(Editing by Padraic Cassidy)

With his poll numbers at new lows amid frustration with 9.1 percent unemployment, Obama called for urgent action on a broad set of proposals he laid out just 14 months before voters decide whether to give him a second term.

"You should pass this jobs plan right away," he said in a forceful, impassioned tone in the televised speech to a rare joint session of Congress.

"The question is whether, in the face of an ongoing national crisis, we can stop the political circus and actually do something to help the economy," Obama said, taking a swipe at Republicans who have consistently opposed his initiatives.

Obama, who pushed through an $800 billion economic stimulus package in 2009, said his new plan would cut taxes for workers and businesses and put more construction workers and teachers on the job through infrastructure projects.

As fears rise of another U.S. recession and more global economic gloom, G7 finance ministers meeting in France on Friday are set to encourage countries that can afford it to do more for growth.

Treasury Secretary Tim Geithner said on Thursday that efforts to create U.S. jobs could help the world economy regain speed.

FINDING COMMON GROUND

Estimates from several economists showed that Obama's jobs package, if passed, could lift U.S. economic growth by 1 to 3 percentage points in 2012, add some 1 million jobs and lower the unemployment rate by about half a percentage point.

"This struck me as a pretty well-balanced plan. It's got something for everybody," said Omer Esiner, senior market analyst at Commonwealth Foreign Exchange in Washington. "If Congress can't agree on something like this then there's not much hope for the paralysis changing."

Bipartisan cooperation could be hard to come by in Washington's climate of political dysfunction where a bruising debt feud this summer brought the country to the brink of default and led to an unprecedented U.S. credit downgrade.

During the speech, Republicans reacted to many of Obama's proposals with stony silence. Party leaders said later they would work with the president to find common ground even if they were unlikely to support the entire package.

"Let's do the things we agree on, set aside the things we differ on and get to work so we can have some results for people who are hurting so badly out there," said Eric Cantor, the Republican leader in the House of Representatives.

Cantor suggested he could support expanding a payroll tax cut that passed Congress last year. But other Republicans said they were not inclined to back it this time.

A top Senate Republican, Jon Kyl, said Obama "merely dusted off a tired agenda of old ideas wrapped in freshly partisan rhetoric."

Obama is seeking to seize the initiative in his bitter ideological battle with Republicans, ease doubts about his economic leadership and turn around his presidency at a time when his re-election bid looks unexpectedly daunting.

He wants Congress to pass his "American Jobs Act" -- which administration officials said would cost $447 billion -- by the end of this year and offset the cost with deficit cuts.

But a deal may be hard to achieve with politicians already focusing on the campaign for the November 2012 election.

If Obama can push through his plan, it might provide an economic boost quickly enough for him to reap political benefits. If it stalls in a divided Congress, his strategy will be to blame Republicans for obstructing the economic recovery.

"PROVIDE A JOLT"

Obama said his plan would "provide a jolt to an economy that has stalled and give companies confidence that if they invest and hire there will be customers."

He proposed extending unemployment insurance at a cost of $49 billion, modernizing schools for $30 billion and investing in transportation infrastructure projects for $50 billion.

But the bulk was made up of $240 billion in tax relief by cutting payroll taxes for employees in half, to 3.1 percent, next year and trimming employer payroll taxes as well.

A surprise element for economists was that Obama called not just for an extension of the employee payroll tax holiday but for a more generous tax break.

Obama also said he was seeking to broaden access to mortgage refinancing to help the ailing housing market, drawing rare applause from Republicans during the speech.

U.S. stock index futures fell and analysts said investors will await clear signs of how the plan would fare in Congress.

The U.S. Chamber of Commerce, America's most powerful business lobby and a frequent critic of Obama, said the plan "appeared to fall short" and urged him to reduce regulatory uncertainty.

But he seems to have mollified part of his liberal base.

Richard Trumka, president of the AFL-CIO labor federation, praised Obama for an "important" step. Trumka had warned that unions would be judging the plan to decide who to support in the 2012 election.

How much of the jobs package is viable remains in question as almost all of it ultimately depends on winning support from Republicans who control the House.

But Obama insisted that "everything in here is the kind of proposal that's been supported by both Democrats and Republicans -- including many who sit here tonight -- and everything in this bill will be paid for. Everything."

With his repeated exhortation to lawmakers to "pass this bill," Obama made clear he would make the drive a key part of his re-election campaign. He takes his jobs push on the road on Friday with an economic speech in Richmond, Virginia.

Republicans will still be resistant, not wanting to give Obama a helping hand before the election. But they will be under pressure to cede some ground to help boost the economy or risk a voter backlash in 2012.

Obama's choice of a joint session of the House and Senate, a setting better known for the president's annual State of the Union address, was intended to lend ceremonial pomp to a critical speech and push Republicans to cooperate. But it also carried the risk of raising unreasonable public expectations.

Obama's speech took on new urgency after the latest Labor Department report showed zero employment growth in August, stoking fears of a slide back into recession.

Federal Reserve Chairman Ben Bernanke, who has said the onus for helping the economy now lies mainly with lawmakers controlling spending, warned that overzealous belt-tightening could slow down the "erratic" recovery.

(Additional reporting by Laura MacInnis, Jeff Mason, Andy Sullivan, Patricia Zengerle, JoAnne Allen, Stella Dawson, Caren Bohan, Tim Reid, Tom Ferraro and David Lawder; Editing by John O'Callaghan)