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As another round of news and bond auctions from Europe begins next week, traders will watch closely sovereign bond yields that have kept markets on edge.

Yields rose in almost every euro-zone country this week, and Germany failed to find enough bids for a 10-year auction. The S&P 500 reacted by posting a second straight week of declines and its worst week in two months.

Politicians are scrambling to find a way out of a two-year-old sovereign debt crisis in the euro zone and a visit to Washington from top European Union officials, as well as a meeting of euro-zone finance ministers, will provide the market with headlines and possibly add to uncertainty.

With the specter of rising yields, France, Britain, Italy, Belgium and Spain are holding debt sales next week. The direction of bond yields will determine the direction of equity markets.

"Politicians are trying to buy themselves time so austerity measures kick in and impact budgets and deficits and markets become more forgiving and rates come down," said Wasif Latif, vice president of equity investments at the San Antonio, Texas-based USAA Investment Management, which manages about $45 billion.

"The credit market and fixed income are a little bit more in the eye of storm; that's where the issue is rising, so equities are more reactionary," he said. "You may continue to see more of the same."

Investors have worried about rising borrowing costs in many euro-zone nations, but Italy, the third-largest euro zone economy, has grabbed most of the focus. On Friday Rome paid a record 6.5 percent to borrow for six months and almost 8 percent to issue two-year zero coupon bonds.

Many market participants have said that the sharply differentiated risk-on and -off trades that the euro zone crisis has generated has seen equities being sold as an asset class, with little or no difference between strong and week balance sheets and earnings reports. But a wedge has opened at least from a global perspective, as data show stocks of companies with more exposure to Europe are underperforming.

POLITICS TO DRIVE THE WEEK

President Barack Obama will meet on Monday with European Council President Herman van Rompuy and European Commission President Jose Manuel Barroso, and Europe's response to the two-year sovereign debt crisis is expected to top the agenda.

"The only thing that will come out of that is speculation," said Todd Salamone, vice president of research at Schaeffer's Investment Research in Cincinnati, referring to the meeting in Washington.

"It will come down to the U.S. trying to convince European leaders to get something in place to solve this crisis."

Not many hopes are set either on Tuesday's meeting where euro-zone finance ministers are expected to agree on how to further strengthen the region's bailout fund.

On Thursday, European Central Bank President Mario Draghi presents the bank's annual report to the European parliament.

As the latest reminder from markets to politicians that they are running out of time, Belgium's credit rating was downgraded by Standard & Poor's.

IF EUROPE ALLOWS, DATA WILL BE KEY

Some of the most important U.S. economic monthly data will be released next week, but will it be enough to unlink the stock market's behavior and European yields.

New home sales and the S&P/Case-Shiller home prices index will start the week showing if the housing market continues on life support. Data on confidence among consumers, who flooded U.S. stores on Friday as the holiday shopping season started, will be released on Tuesday.

The Institute for Supply Management's manufacturing report is due, with investors not only looking at the U.S. number on Wednesday but also factory readings from Europe and China on Thursday.

By midweek labor data takes over with the private sector employment report from ADP and Challenger's job cuts report, followed Thursday by the weekly jobless claims numbers and topped by Friday's monthly non-farm payrolls report.

"It would be a little bit refreshing to focus on the U.S. data for a change," said Brian Lazorishak, senior quantitative analyst and portfolio manager at Chase Investment Counsel in Charlottesville, Virginia.

He said if European headlines allow it, the focus will be in the labor market where "most people are looking for modest improvement."

(Reporting by Rodrigo Campos; additional reporting by Edward Krudy; Editing by Kenneth Barry)

The Brooklyn, New York teacher, one of hundreds of thousands of shoppers jostling for deals around the country, said he ended up spending about 25 percent more than he planned, even while worrying about the state of the economy.

"I did not expect such deals," the 33-year old said as he left a Macy's store in Jersey City, New Jersey clutching bags full of clothing for himself and his family.

"It's slashed down to the bones," he said. "There were some great discounts if you showed up early."

Deals are always part of the picture on the Friday after Thanksgiving. This year was notable for an earlier opening for some retailers and possibly for the one shopper using pepper spray to make sure she could get a popular video game system.

The early start by stores brought out younger shoppers such as Alina Ybarra, who spent the wee hours of the morning with her friends as they all looked for items for themselves.

"It's really chaotic," Ybarra, 17, said of her first Black Friday outing as she finished her shopping in Santa Monica, California. She said that she liked the deals at stores such as Gap Inc's Old Navy and Urban Outfitters.

"It seems like a lot of teenagers were the primary shoppers, maybe because of the hour, but I think net-net it's not really going to result in an incremental positive for retailers," Ed Yruma, senior equity analyst at KeyBanc Capital Markets, said after checking out crowds at the Mall of America in Bloomington, Minnesota. He said shoppers were not carrying a lot of shopping bags.

Leon Clare, 24, and Shawn Sykes, 27, both U.S. Navy Corpsmen, drove about 125 miles from 29 Palms Marine Base to Santa Monica so they each could spend close to $175 on a pair of Air Jordan Retro 3 shoes in "Black Cement," popular new sneakers from Nike Inc.

"This is for me," said Clare, who plans to spend more on holiday gifts later on in the season.

"I'm leaving for Afghanistan in March. I'm getting something for everyone, just in case I don't come back."

WORRIED... AGAIN

More than 120 stores at the Mall of America opened at midnight. The crowd at that point was about 15,000 people. Mall operators estimated that it was the largest crowd ever at the mall, which is big enough to hold seven Yankee Stadiums.

While eager shoppers emerged from stores around the country lugging big-screen TVs and bags full of video games and toys, it was far from certain that people will pull out their wallets for much more than the best deals this year. Shoppers with limited budgets started using layaway at chains such as Walmart as early as October.

Retail shares fell more than the overall market on Friday.

"Americans are still worried about jobs, still worried about the economy," said Mike Thielmann, group executive vice president at J.C. Penney, who noted that shoppers were buying gifts and for themselves, and said jewelry was selling well.

In Houston, Rico Salvosa, 60, bought two cameras at Best Buy and said he had saved about $170.

"It's worse than before because business is slow," Salvosa, who wholesales stone countertops, said as he left the store with his daughters. "I don't have a lot of savings for holiday shopping. I told them, 'I cannot buy everything that you'd like.'"

Competition among the retailers was fierce as it was among shoppers, as some stores opened hours earlier than before.

Outside Macy's flagship store in New York, some Occupy Wall Street activists chanted "boycott Macy's" and "stop supporting big corporations" even as about 9,000 people lined up to shop when the store opened at midnight.

Opening early appeared to work, judging from the long lines at stores such as Macy's, Toys R Us, Best Buy, Walmart and Target.

"It was crazy around midnight and one in the morning," said a Target employee at the chain's East Harlem, New York store, where the crowd thinned out later on Friday morning.

Even after a Toys R Us in New Jersey had been open for nearly an hour, at 9:50 p.m. EST on Thursday night, there was still a line of about 300 people waiting to get inside.

The 24 hours that started at 9 p.m. Thursday will be the biggest in retail history, with sales estimated at $27 billion, according to Craig Johnson, president of Customer Growth Partners, one of the few experts predicting a strong season.

The term "Black Friday" commonly refers to the day after Thanksgiving, the traditional start of the busy holiday shopping season when retailers do brisk business. (See related story: Spirited 'Black Friday' has dark roots.

While it is the busiest day of the year in terms of store traffic, it does not always mean that sales will soar for the season.

Despite brisk sales right after Thanksgiving in 2008 and 2009, total holiday season sales fell as the recession gripped the country.

The National Retail Federation, an industry trade group, expects 152 million people to hit stores this weekend, up 10.1 percent from last year. Yet it expects sales for the full November-December holiday season to rise just 2.8 percent, well below the pace of last year when sales rose 5.2 percent.

Luxury chains such as Saks Inc and those catering to lower-income shoppers, such as dollar stores, are expected to do well this shopping season.

"For our products that are $25,000 and up, growth is phenomenal," said Mark Vadon, founder of online jewelry retailer Blue Nile. "Price points under $100 are also doing really well. For the mass part of the market, consumers are strapped and being a lot more wary."

Overall, retail executives and analysts expect a more competitive shopping season than in 2010. Unemployment remains at 9 percent, European debt woes are weighing on the stock market, and consumer confidence remains spotty.

Online sales on Thursday and Friday surpassed last year, and more shoppers used their mobile devices to buy, according to IBM data. The amount U.S. shoppers spent via eBay Mobile more than doubled on Thanksgiving, while eBay's PayPal Mobile unit saw a five-fold increase in global mobile payment volume versus last Thanksgiving.

The online push put pressure on some companies. Walmart.com saw some very high traffic, so some customers may have experienced delays as they tried to check out, it said.

Even Apple Inc gets into the Christmas spirit on Black Friday, the only day that it usually offers discounts. This year it offered its typical $101 discount on its $900-plus Mac laptops and $41 or more off its $499-plus iPads.

(Reporting by Dhanya Skariachan, Liana B. Baker and Phil Wahba in New York, Mihir Dalal in Jersey City, New Jersey, Jessica Wohl in Chicago, Diane Bartz in Hyattsville, Maryland, Lisa Baertlein and Edwin Chan in Los Angeles, Alistair Barr in San Francisco and Bruce Nichols in Houston. Editing by Jon Loades-Carter, Phil Berlowitz and Robert MacMillan)

Stocks were facing their worst week in two months and their second consecutive week of losses. The S&P 500 has fallen 4.4 percent this week and has given back almost two-thirds of its gains in October, the market's best month in 20 years.

Yields on Italy's debt approached recent highs that sparked a sell-off in world markets. Italy paid a record 6.5 percent to borrow money over six months on Friday, and its longer-term funding costs soared far above levels seen as sustainable for public finances, raising the pressure on Rome's new emergency government.

A European Union conference in Strasbourg produced little to ease the markets fears, said Peter Cardillo, chief market economist at Rockwell Global Capital in New York.

"What they agreed to was not bickering in public," he said. "The markets are going to continue to pressure the EU until they come up with a solution that is going to ease the crisis."

For many investors that means the European Central Bank printing euros to buy larger amounts of European bonds and for Germany to accept the issuance of euro bonds. Germany currently opposes both of those options.

S&P 500 futures fell 9.4 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 lost 76 points, and Nasdaq 100 futures sank 15 points.

U.S. stock markets were closed for the Thanksgiving holiday on Thursday and will be open on Friday until 1 p.m. The day after Thanksgiving is typically one of the lightest trading volume days of the year.

Reinforcing what some see as recent signs of strength in the U.S. economy, shoppers stateside flocked to stores, which opened early to offer a jumpstart to "Black Friday," the traditional beginning to the U.S. holiday shopping season.

European stocks .FTEU3 fell 0.3 percent on Friday, losing ground for the ninth time in 10 sessions and were set to post their biggest weekly loss in two months, dragged by deepening worries over the euro zone debt crisis and the outlook for the global economy.

The euro fell 1 percent against the dollar to a fresh seven-week low.

AT&T Inc (T.N) said it would take a $4 billion charge in case its proposed takeover of T-Mobile USA fails, a tacit recognition of the dwindling chances that the deal will get through U.S. regulators, who say it would destroy jobs and curb competition. AT&T shares fell 0.4 percent in premarket trading to $27.44.

U.S. apparel brand Gap Inc (GPS.N) said on Friday that it aims to triple its network of stores in China next year, one of the latest foreign brands to target the country's consumer spending growth.

(Editing by Padraic Cassidy)

Some stores, looking to grab as big a piece as possible of what is expected to be a middling holiday shopping season pushed post-Thanksgiving openings into Thursday evening or opened at midnight for the first time in years, getting a jump start on "Black Friday," the traditional beginning to the U.S. holiday shopping season.

The strategy appeared to be working, judging from the 300 people who were lined up at a Toys R Us store on Long Island, New York before it opened at 9 p.m. on Thursday, while shoppers and employees at other stores said the crowds were bigger than in the past.

Shoppers were looking for bargains, but customers like James McBreaty were just what retailers wanted -- those who will also buy things beyond the "doorbuster" deals that retailers offer to entice customers.

"We came for the deals but we were just discussing if we will buy things that aren't discounted," McBreaty, 32, a paralegal who was waiting with his wife Nicole, said. "Most likely the entire store isn't discounted but we're here so we'll probably buy some crap anyway."

The National Retail Federation expects 152 million people to hit stores this weekend, up 10.1 percent from last year.

In reality, the shopping period has been underway for some time as retailers such as Wal-Mart Stores Inc and Toys R Us started early by offering layaway programs.

Retailers from Amazon.com to Wal-Mart were also offering online deals as Thanksgiving has become one of the biggest online shopping days of the year.

Retail executives and analysts are predicting a more competitive season than 2010. Unemployment still remains at 9 percent, European debt woes are weighing on the stock market and consumer confidence remains spotty.

NRF, an industry trade group, forecast a 2.8 percent increase in sales for the November-December holiday season, down from the 5.2 percent increase in 2010.

Some shoppers even feel as though the recession has returned, even if it has not shown up in economic data.

"This year, we are going to do shopping but I don't think it is going to be as much shopping as we usually do. Because of the recession, we are not going to shop as much," Desiree Schoolfield, 49, a public service profession from Queens who was shopping at the Toys R Us in Times Square, said.

REALLY EARLY START

Nelson Sepulveda, a building superintendent from Manhattan, was the first person in line at the Best Buy in Union Square, having queued up at 8 p.m. on Wednesday -- 28 hours before the store opened -- to get the $200 Sharp 42-inch LCD television, Play Station 3 games and other items he wanted.

NRF expects 152 million people to hit stores this weekend, up 10.1 percent from last year.

Wal-Mart, Old Navy, which is part of Gap Inc, and KMart, owned by Sears Holdings', were among the few retailers open on Thanksgiving.

Wal-Mart began offering Black Friday deals at 10 p.m. on Thursday.

To narrow the gap in store hours with rivals, discounter Target Corp, electronics chain Best Buy and department store chains Macy's Inc and Kohl's Corp will open at midnight - their earliest starts ever.

About 1,000 people were waiting in line at the opening of the Target in Farmingdale,

Those midnight openings drew online petition protests from store workers, and some shoppers also did not like the early openings.

"Tonight all the stores decided to open at midnight which is difficult when you're trying to enjoy dinner with your family," said Louis Clapper, 24, as he shopped at the Walmart in Farmingdale, New York. "Normally I leave the house at midnight, or 3-4 a.m. for a 5 a.m. opening. The stores are opening earlier and earlier."

For others, staying up late beat waking up for a 4 a.m. or 5 a.m. opening.

"Nobody really has to be out so early to come into the store. I really feel like that's better," Tosha Smith, 21, hotel attendant, lives in Queens, said while shopping at Macy's.

At Macy's in Herald Square, four Occupy Wall Street activists chanted "boycott Macy's" and "stop supporting big corporations" even as about 9,000 people lined up to shop at the store.

Others retailers, including J.C. Penney Co Inc, are opening early Friday morning as they did last year.

Wal-Mart started its Black Friday "doorbuster" deals on Thursday at 10 p.m. at its stores. Amazon.com Inc, not to be outdone, will offer its deals online at 9 p.m.

The knock-down-drag-out fight comes as the rebound in sales cooled in October, when many top chains like Macy's and Saks reported disappointing sales.

It will be even tougher for chains that have struggled with sales declines lately, like Gap and Penney.

Last year, after a strong Black Friday weekend, shoppers sat on their hands until closer to Christmas.

(Writing by Brad Dorfman in Milwaukee. Reporting by Dhanya Skariachan, Liana B. Baker and Phil Wahba in New York; Editing by Jon Loades-Carter)