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But some underperforming investors are being cornered into putting yet more money into U.S. stocks.

The S&P 500 on Friday closed its fourth week of gains and is up more than 13 percent in October alone. But many, including hedge funds, were caught wrong-footed by the rally.

Even though some pullback may be expected next week, the clearer picture after the European deal "should give a green light for many of the funds to get back in risk assets," according to Robert Francello, head trader at hedge fund Apex Capital, which manages about $2 billion in San Francisco.

"Hopefully we'll be able to see some further gains into the year end," he said.

Hedge funds, among the equity market's power players, are on average sitting on losses of 8 percent for the year according to Hedge Fund Research. Meanwhile, the S&P 500 is up for the year, if only a bit more than 2 percent.

A JPMorgan note to clients following Thursday's 3 percent rally on the U.S. benchmark index argues for a "strong foundation for an equity rally into year end," with a 1,400-1,475 target.

That's more than the 8 percent gain hedge funds would need to come out of the red for the year.

"If you're a hedge fund manager and you want to put money to work it feels like it has to be on the long side: buying stocks, buying risky assets," said Nicholas Colas, chief market strategist at the ConvergEx Group in New York.

"For the moment, you've taken away major risk in Europe and you've replaced it with a potential positive in stock valuations and no double-dip."

European leaders reached a long-awaited agreement to boost the region's bailout fund and struck a deal with banks and insurers who will take a 50 percent loss on their Greek bonds.

A more disorderly default from Greece, and the possibility of sovereign defaults spreading in Europe, were part of the reason the S&P 500 closed its worst quarter since 2008 in September.

The market was also relieved after data earlier this week showed the U.S. economy grew at its fastest pace in a year in the third quarter.

A heavy flow of job market data, capped on Friday by the government's monthly report of job payrolls, will be closely watched to confirm the upbeat macroeconomic trend. A Reuters poll of economists shows employers created 95,000 jobs in October.

EARNINGS AND FED TO POWER ON THE RALLY

More than 100 S&P 500 companies will report earnings next week, with Lowes, Pfizer and Kellogg among the highlights.

Among the more than 300 that have already posted earnings for the past quarter, roughly seven out of 10 have reported better numbers than analysts expected.

Some expect the Federal Reserve to announce another round of asset purchases -- similar to the quantitative easing plan set up last year that sparked a year-long rally in stocks.

An equities rally following Fed purchases would most likely be led by commodity-related sectors, said Apex Capital's Francello.

"The Fed is beginning to lay the groundwork for another round of quantitative easing, so that should also put some wind in the back of risk assets," he said.

CHARTS ALSO LOOK BULLISH

The technical picture is also turning bullish, with the S&P moving this week above its 200-day moving average for the first time since early August.

At 1,285 the S&P faces resistance just below 1,300, an RBC Capital Markets note said, but the year-end trend for stocks points higher.

"We're still in a period of high volatility so you can't take anything for granted," said Colas from ConvergEx Group.

"Do you buy the dips? I believe that is the case."

(Wall St Week Ahead runs every Friday)

(Reporting by Rodrigo Campos; additional reporting by Svea Herbst; Editing by Kenneth Barry)

MF Global has reached out to major banks including Barclays PLC, Citigroup Inc, Deutsche Bank, Jefferies Group Inc, JPMorgan Chase & Co, Macquarie Group Ltd, State Street Corp and Wells Fargo, according to the source.

Private equity firm J.C. Flowers, which has a stake in MF Global, is also in talks about possibly taking it private, the Wall Street Journal reported.

"If it gets done, it needs to get done by Monday," the source said. "Whether it gets sold in parts or pieces, they are in good shape to orchestrate this process."

MF Global has declined to comment on its troubles.

Barclays, Citigroup, Deutsche, Jefferies and Wells Fargo also declined to comment, while the other banks and Flowers could not be reached immediately for comment late on Friday.

Pressure mounted on MF Global -- run by former Goldman Sachs Chief Executive Jon Corzine -- to sell after a week in which it posted a quarterly loss, its shares fell by two-thirds and its credit ratings were cut to junk.

The brokerage, which under Corzine increasingly used its own capital to trade, is paying the price for investments made on bonds of countries in the euro zone, and it is emerging as one of the hardest-hit U.S. firms in the fallout from Europe's sovereign debt crisis.

When a broker's credit rating drops to junk, it erodes confidence in its credit worthiness and can then restrict its ability to borrow -- the bedrock of any financial institution -- and fund day-to-day operations.

The firm's position in the repurchase market -- a vital place for short-term funding -- is under intense scrutiny because of the weakness in European debt.

MF Global is now scrambling to reassure sometimes skittish clients about its stability. But it told at least one fund that a number of clients are withdrawing money.

Its troubles become "a self-fulfilling prophecy," said Perry Piazza, director of investment strategies at Contango Capital Advisors in San Francisco. "The end game here is not good," he said.

MF Global stock dropped as much as 31 percent in early trading to 99 cents, its lowest ever, but later rebounded to $1.29. It was the second most actively traded stock on the New York Stock Exchange.

The company's bonds were trading in the mid-40s, which implies a high likelihood of default, after touching a morning low of 38 cents on the dollar. That was down from Thursday when the bonds, maturing in 2016 with a 6.25 percent coupon, were at 70. MF Global had offered the notes at par in August.

SALE PROCESS

The company tapped Evercore Partners Inc to advise it on strategic options including a possible sale, said a source familiar with the situation. A second source, who was briefed on the matter, said the company did not enter the talks with "specific targets and objectives."

"We believe MF could generate proceeds from sale of its customer asset portfolio or Futures Commission Merchant which frees up capital," Keefe Bruyette & Woods analyst Niamh Alexander wrote to clients. "However, we cannot quantify the cost of wind down or exiting broker positions that could offset those proceeds and wipe out equity."

MF Global's history dates back over 200 years, to a sugar broker that started in London. For years, MF Global focused on futures brokerage. In 2005, the company, formerly known as Man Financial, acquired Refco's U.S. futures business after that broker collapsed in an accounting scandal.

The company's futures business is in a cyclical downturn, but when interest rates rise, its income could surge and its clients could help boost another bank's broader sales and trading franchise.

Potential bidders are, however, unlikely to pay up for a business like the Futures Commission Merchant, in part because customers can take their relationships elsewhere, industry sources said.

Some customers are diverting money from the New York-based brokerage, according to hedge funds, rivals and analysts, though the extent of the outflows remained unclear.

A source at one of the firms that MF Global has reached out to said they wouldn't rule out their interest in some sort of a deal, but it would have to be something that involved taking on little risk.

A source at a different firm said it was difficult to buy the business because it is hard to evaluate the company's customers quickly, and the best customers could leave soon.

Some potential buyers said they would look at the business if MF Global offered it for cheap, a third source said.

CORZINE AND EUROPE'S FALLOUT

Corzine, who became CEO in March last year after a term as New Jersey's governor, has been trying to transform MF Global from a brokerage that mainly places customers' trades on exchanges into an investment bank that bets with its own capital.

But its bets on bonds from euro zone countries, including those issued by Italy, Spain, Portugal and Ireland, have gone bad, prompting regulators to press it to boost capital and ratings agencies to issue their warnings.

The loss of its investment grade rating, meanwhile, could hasten the exodus of customers away from MF Global.

"Given the uncertainty around timing of the agencies' next move, management needs to move quickly in order to avoid client defections and either work on strategic options or work with the agencies to get back to stable status," Deutsche Bank analyst Michael Carrier wrote to clients.

MF Global's bank loans were lower Friday amid rumors the company drew down its revolving credit lines, separate sources said. The extended revolver due 2014 is quoted 60-65 on Friday after a large piece of the paper is said to have changed hands on Thursday at 70, the sources said.

European Union leaders struck a deal this week to relieve the continent's sovereign debt crisis -- potentially good news for MF Global -- but many details of the EU deal still need ironing out.

In Asia, the Singapore Exchange said MF Global's unit in the city state is meeting its financial obligations as a clearing member. That echoes assurances Thursday by U.S. clearers CME Group Inc, IntercontinentalExchange Inc and options clearinghouse OCC.

(Reporting by Jonathan Spicer, John Balassi, Philip Scipio, Paritosh Bansal, Dan Wilchins, Richard Leong, Karen Brettell,Jeanine Prezioso, Herb Lash in New York, and Charmian Kok in Singapore; Editing by Matthew Lewis, Phil Berlowitz, Gary Hill)

The company run by former Goldman executive Jon Corzine has shed 63 percent of its market capitalization this week. That could hamper MF Global's dealmaking ability, while at the same present possible buyers with assets at big discounts.

Goldman Sachs Group Inc, State Street Corp and Macquarie are all eyeing MF Global or parts of it, The Wall Street Journal reported.

In the last few days, the brokerage posted a quarterly loss and two ratings agencies cut its debt rating to junk -- underscoring the bad bets MF Global made on bonds of countries in the euro zone, which is now battling a debt crisis.

MF Global stock dropped as much as 31 percent in early trading to 99 cents, its lowest ever, but later rebounded to $1.35. It was the second most actively traded stock on the New York Stock Exchange.

"The MF Global team has no choice but to quickly shrink its balance sheet to raise cash and then to sell the cash into the market to show 'strength'," Brad Hintz, a senior analyst at Bernstein Research, wrote to clients.

"These events play out in days."

The company's bonds were trading at distressed levels in the mid-40s, after touching a morning low of 38 cents on the dollar. That was down from Thursday when the bonds, maturing in 2016 with a 6.25 percent coupon, were at 70.

MF Global, which is emerging as one of the hardest-hit U.S. firms in the fallout from Europe, had offered the notes at par in August.

The company tapped Evercore to advise it on strategic options including a possible sale, said a source familiar with the situation. A second source, who was briefed on the matter, said the company is "focused on doing a smart deal, a fair deal," and that it did not enter the talks with "specific targets and objectives."

"We believe MF could generate proceeds from sale of its customer asset portfolio or Futures Commission Merchant which frees up capital," Keefe Bruyette & Woods analyst Niamh Alexander wrote to clients. "However, we cannot quantify the cost of wind down or exiting broker positions that could offset those proceeds and wipe out equity," she wrote.

MF Global has declined to comment on its troubles.

CORZINE AND EUROPE'S FALLOUT

Some customers are diverting money from the New York-based brokerage, according to hedge funds, rivals and analysts, though the extent of the outflows remained unclear. (Graphic of MF Global's market share among futures commission merchants: link.reuters.com/syz64s )

MF Global's bank loans were lower Friday amid rumors the company drew down its revolving credit lines, separate sources said. The extended revolver due 2014 is quoted 60-65 on Friday after a large piece of the paper is said to have changed hands on Thursday at 70, the sources said.

Corzine, who became CEO in March last year after a term as New Jersey's governor, has been trying to transform MF Global from a brokerage that mainly places customers' trades on exchanges into an investment bank that bets with its own capital.

But its bets on bonds from euro zone countries, including those issued by Italy, Spain, Portugal and Ireland, have gone bad, prompting regulators to press it to boost capital and ratings agencies to issue their warnings.

The loss of its investment grade rating could hasten the exodus of customers away from MF Global.

"Given the uncertainty around timing of the agencies' next move, management needs to move quickly in order to avoid client defections and either work on strategic options or work with the agencies to get back to stable status," Deutsche Bank analyst Michael Carrier wrote to clients.

European Union leaders stuck a deal this week to relieve the continent's sovereign debt crisis -- potentially good news for MF Global -- but many details of the EU deal still need ironing out.

In Asia, the Singapore Exchange said MF Global's unit in the city state is meeting its financial obligations as a clearing member. That echoes assurances Thursday by U.S. clearers CME Group Inc, IntercontinentalExchange Inc and options clearinghouse OCC.

(Reporting by Jonathan Spicer, John Balassi, Philip Scipio, Paritosh Bansal, Jeanine Prezioso and Herb Lash in New York, and Charmian Kok in Singapore; Editing by Matthew Lewis and Phil Berlowitz)

The second largest U.S. bank is likely to allow many customers to avoid the fee by taking measures such as maintaining minimum balances, having paychecks direct deposited, or using Bank of America credit cards, the person said.

Under earlier plans, customers might have needed balances totaling $20,000 across all their Bank of America accounts to avoid the fee.

Bank of Americas unleashed a firestorm of criticism from customers, consumer advocates and politicians last month when it disclosed plans to charge customers $5 per month for using their debit cards, starting sometime next year. The goal was to make up revenue lost to a law that slashes the fees banks charge retailers when consumers swipe their cards.

Some other major banks have quietly pulled back on the charges. After testing a $3 per month fee in two states since February, JPMorgan Chase & Co decided not to charge customers, a person familiar with the situation said on Friday. The test will end next month and will not be extended or expanded, the person added.

Wells Fargo & Co started testing a $3 per-month fee in five states on October 14. The bank has not had time to evaluate results and has not made any changes in the program, Wells spokeswoman Lisa Westermann said.

Charlotte, North Carolina-based Bank of America is not abandoning the fee now and will likely include it in new account types the bank is testing in three states. The bank plans to roll out these packages nationwide next year.

The $5 per-month fee may still remain an option for customers, the person said.

The bank has said the purpose of the new account types is to provide customers with upfront pricing, instead of hitting them with penalties after the fact. Customers can pay monthly fees of between $9 and $20, or avoid the charges by keeping minimum balances, using their credit cards or having a minimum amount deposited to their account.

While some banks have disclosed plans to apply similar fees, many banks and credit unions decided not to institute the charge and have encouraged customers to switch banks.

(Reporting by Rick Rothacker in Charlotte, North Carolina; editing by Andre Grenon)

The Commerce Department said on Friday consumer spending increased 0.6 percent, matching expectations, after a 0.2 percent gain in August. Consumer spending accounts for about 70 percent of U.S. economic activity.

With income edging up 0.1 percent last month, spending was at the expense of saving, which dropped to an annual rate of $419.8 billion, the lowest level since August 2009, from $479.1 billion in August.

The saving rate, the percentage of disposable income socked away, fell to 3.6 percent, the slowest since December 2007, from 4.1 percent in August.

Income fell 0.1 percent in August and economists had expected a 0.3 percent increase in September.

"Very weak income, but very solid consumption even though consumer confidence is in recession. So that's good news for the economy," said Kurt Karl, chief U.S. economist at Swiss Re in New York. "(But) it's hard to sustain without more income growth."

A separate report from the Labor Department showed wages and salaries expanded 0.3 percent in the third quarter -- the smallest rise in a year -- after gaining 0.4 percent pace in the prior quarter.

U.S. Treasuries prices held steady at higher levels after the data. Stock index futures were lower after a big rally on Thursday, while the euro extended a decline against the dollar.

In September, inflation-adjusted disposable income slipped 0.1 percent, declining for a third straight month.

Sturdy consumer spending contributed to gross domestic product growing at a 2.5 percent annual pace in the third quarter, the fastest rate in a year, after an anemic 1.3 percent rate in the second quarter. Much of the spending data was included in Thursday's GDP report.

But given that income is not driving spending, the economy could lose some of its new found momentum. Consumer spending grew at a 2.4 percent pace in the last quarter, the fastest in nearly a year.

Stubbornly high unemployment, characterized by a jobless rate that has been stuck above 9 percent for five consecutive months, is restraining income growth. Last month, wages and salaries rose 0.3 percent after dipping 0.1 percent in August.

But subsiding inflation pressures should offer households some relief. A price index for personal spending rose at a 0.2 percent rate last month, slowing from August's 0.3 percent pace. In the 12 months through September, the PCE index was up 2.9 percent after rising by the same margin in August.

A core inflation measure, which strips out food and energy costs, was flat last month after increasing 0.2 percent in August. In the 12 months through September, core PCE rose 1.6 percent after increasing 1.7 percent in August.

The Federal Reserve would like this measure close to 2 percent.

(Reporting by Lucia Mutikani and Jason Lange; Editing by Neil Stempleman)

Klaus Regling, chief executive of the European Financial Stability Facility (EFSF), was in Beijing for talks with Chinese officials a day after euro zone leaders struck a last-minute accord on the two-year-old debt crisis.

European leaders are now under pressure to finalize the details of their plan to slash Greece's debt burden and strengthen their rescue fund.

After their summit in Brussels, governments announced an agreement under which private banks and insurers would accept 50 percent losses on their Greek debt holdings in the latest bid to cut Athens' debt load to sustainable levels.

Regling said the bailout deal with Greece was an exceptional case that he did not believe would have to be repeated for other nations.

Many in financial markets are concerned that the fund is not big enough to cope if major economies Italy and Spain are drawn deeper into the crisis. Italy's borrowing costs hit new euro-era highs at a bond auction Friday.

"We all know China has a particular need to invest surpluses," Regling told a Beijing news conference Friday, referring to the country's $3.2 trillion of foreign exchange reserves, the world's biggest.

France said investment by China would inspire confidence.

"The reality is that China is the third largest shareholder in the International Monetary Fund, and if China via the IMF wants to participate - not by saving Greece or the euro - but by participating in investment, that is a gesture of confidence," French Finance Minister Francois Baroin said.

"What is happening in Europe and creating instability is that public and private investors are pulling out," he told RMC radio.

Economists polled by Reuters Thursday were split down the middle over whether the writedown was big enough, with 24 of 47 saying it wasn't and the remainder saying it was.

Reached after more than eight hours of hard-nosed negotiations between bankers, heads of state and the IMF, the deal also foresees a recapitalization of hard-hit European banks and a leveraging of the EFSF, to give it firepower of 1.0 trillion euros ($1.4 trillion).

Global stocks were expected to record their best week in over two years Friday, bolstered by the Brussels deal, while the euro held just below a seven-week high. Shrugging off the lack of detail in Thursday's anti-crisis measures in Europe, shares extended the previous session's sharp rally.

The FTSEurofirst 300 index of leading European shares was up 0.2 percent at 1,021.67 points in early trade.

Switzerland said it was looking at participating in the EU bailout fund via a special investment vehicle, although the idea could run into domestic opposition given the country's euroskeptical nature.

Norway, however, whose $564 billion oil fund is Europe's biggest investor in equities, said it had less than 100 million euros in EFSF investments.

Key aspects of the eurozone deal deal, including the mechanics of boosting the EFSF and providing Greek debt relief, could take weeks or even months to pin down, raising the risk of the plan unraveling as the last one did.

Three months ago, euro zone leaders unveiled another agreement that was meant to draw a line under the debt woes that threaten to tear apart the 12-year old currency bloc.

In a matter of weeks they realized it was inadequate given the depth of Greece's economic problems and the vulnerability of European banks.

The new deal aims to address these holes.

"ABSOLUTELY SUSTAINABLE"

Under it, the private sector agreed to voluntarily accept a nominal 50 percent cut in its bond investments to reduce Greece's debt burden by 100 billion euros, cutting its debts to 120 percent of gross domestic product by 2020, from 160 percent now.

The euro zone will offer 30 billion euros in "credit enhancements" or sweeteners to the private sector to get them on board. The aim is to complete negotiations on the package by the end of the year, so Greece has a full, second financial aid program in place before 2012.

The value of that package, EU sources said, would be 130 billion euros -- up from 109 billion euros in the July deal.

"The debt is absolutely sustainable now," Greek Prime Minister George Papandreou said.

In a bid to convince markets that they can prevent larger countries like Italy and Spain from being swept up by the crisis, euro zone leaders also agreed to scale up the EFSF, the 440 billion euro bailout fund they created in May 2010 and have already used to provide aid to Ireland, Portugal and Greece.

Around 250 billion euros remaining in the fund will be leveraged 4-5 times, producing a headline figure of around 1.0 trillion euros.

The EFSF will be leveraged in two ways, either by offering insurance, or first-loss guarantees, to purchasers of euro zone debt in the primary market, or via a special purpose investment vehicle that will be set up in the coming weeks and which is aimed at attracting investment from China and Brazil.

The methods could be combined, giving the EFSF greater flexibility, the euro zone leaders said.

But EU finance ministers are not expected to agree on the nitty-gritty elements of how the scaled up EFSF will work until some time in November, with the exact date not fixed.

Another question mark is Italian Prime Minister Silvio Berlusconi's commitment to implementing reforms seen as crucial for restoring confidence in the bloc's third largest economy.

Dogged by scandals, Berlusconi has promised to raise the retirement age to 67 by 2026 and attempt other reforms, but the EU is reserving judgment after repeated backsliding from Rome in recent months.

SARKOZY TALKS TO HU

French President Nicolas Sarkozy said he had spoken to Chinese President Hu Jintao by telephone Thursday and that Hu was relieved Europe had announced a deal to tackle a debt crisis that otherwise could have taken down the entire world economy and not just the economy of the euro zone.

He also defended the idea of Chinese investment in Europe's anti-contagion fund, donning the hat of euro salesman.

"China has a major role to play. China must deploy more resources to stimulate the world economy: If they decide to invest in the euro rather than the dollar, why reject that? "

"Why not accept that the Chinese place their trust in the euro zone?"

"China hopes all these measures will help stabilize the European financial market and conquer the current difficulties and promote the economic recovery and development," Hu said, according to China's state television.

($1 = 0.724 Euros)

(Writing by Giles Elgood; Editing by Ruth Pitchford)

Chevron, the second-largest U.S. oil company, is expected to show a sharp increase in profit in its quarterly review, boosted by a $500 million gain on the sale of its Welsh refinery and British and Irish marketing assets. Its profit is expected to jump to $3.46 per share from $1.87 per share.

Merck, the No. 2 U.S. drugmaker, is likely to post a profit of 91 cents per share, up from 85 cents a year ago. Other companies announcing results included Newmont Mining, Whirlpool and Biogen.

The Commerce Department releases at 8:30 a.m. EDT September personal income and consumption data. Economists expect a 0.3 percent rise in income and a 0.6 percent increase in spending. In August, income fell 0.1 percent and spending was up 0.2 percent.

The Labor Department issues at 8:30 a.m. EDT the Employment Cost Index for Q3. Economists expect a rise of 0.6 percent versus a 0.7 percent increase in Q2.

Exxon Mobil Corp awarded two engineering contracts to build floating storage and offloading facilities at the Banyu Urip oilfield and said this will lead to full production of 165,000 barrels per day at its Cepu block in three years.

At 1355 GMT, Thomson Reuters/University of Michigan Surveys of Consumers release final October consumer sentiment index. Economists expect a reading of 58.0 compared with 57.5 in the preliminary October report.

Economic Cycle Research Institute releases at 10:30 a.m. EDT its weekly index of economic activity. In the prior week the index read 120.4.

Samsung Electronics Co overtook Apple as the world's top smartphone maker in the July-September period with a 44 percent jump in shipments, and forecast strong sales in the current quarter.

Brocade Communications System Inc may be back to looking at prospective buyers, the Wall Street Journal said, citing people familiar with the matter.

Some customers are moving money away from struggling futures brokerage MF Global Holdings Ltd, according to hedge funds, rivals and analysts, though the extent of the outflows is unclear.

Infospace shares fell 9 percent in late trade on Thursday after the company announced results. However, Deckers Outdoor Corp rose 3.3 percent, Advanced Micro Devices Inc climbed 6.3 percent and Baidu Inc added 5.5 percent after results.

Japan's Nikkei average rose 1.4 percent while European shares were up 0.2 percent after strong gains in the previous session, with investors remaining positive by a deal struck by euro zone leaders to help end the bloc's two-year-old debt crisis.

President Barack Obama said on Thursday the deal struck by euro zone leaders had calmed global markets and it was now important that the countries follow through on implementation of the agreement.

The Dow Jones industrial average was up 339.51 points, or 2.86 percent, at 12,208.55. The Standard & Poor's 500 Index was up 42.59 points, or 3.43 percent, at 1,284.59. The Nasdaq Composite Index was up 87.96 points, or 3.32 percent, at 2,738.63.

(Reporting by Atul Prakash; Editing by David Holmes)