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In comments to The Sunday Times newspaper, Transport Minister Leo Varadkar became the first cabinet member to cast doubt in public on Ireland's ability to raise cash on the bond market because of punishing yields demanded by investors.

"I think it's very unlikely we'll be able to go back next year. I think it might take a bit longer ... 2013 might be possible but who knows?" Varadkar was quoted as saying.

"It would mean a second program (of loans from the EU/IMF)," he said. "Either an extension of the existing program or a second program. I think that would generally be most people's view."

Deputy Prime Minister Eamon Gilmore told broadcaster RTE that fears of a domino effect from Greece's problems were overblown. The possibility of a Greek default has sent bond yields rocketing for indebted Ireland, Portugal and Spain.

"It's not a situation that if Greece defaults then there are immediately implications for Ireland," Gilmore said.

"If Greece defaults there are implications for the wider euro zone and obviously we are part of that."

"It is wrong to put Ireland in the same basket as Greece."

PRIVATISATION AMBITIONS

Greece's hopes of averting default dimmed over the weekend amid fears the country, whose debt burden stands at around 330 billion euros, may have missed fiscal targets set by its creditors.

The IMF has dismissed reports that an international inspection team had found that Greece had missed all its fiscal targets. But the current mission to Athens has stayed far longer than on previous occasions and is locked in talks with the government to get economic reforms on track.

Athens' creditors are increasingly focused on the possibility of raising more funds from privatizations and a poll on Sunday showed that an overwhelming majority of Greeks are in favor of selling and developing state assets to raise 50 billion euros.

The European Central Bank and the IMF, however, don't believe the privatization program is ambitious enough. ECB board member Juergen Stark said Greece could raise six times more than the 50 billion euros planned from asset sales, echoing earlier views from the IMF.

A Greek paper reported on Sunday that the government was considering setting up a Spanish-style "bad bank" to clean up its lenders' accounts from "toxic" Greek bonds and make them more attractive to potential buyers.

Athens is in a race against time to secure political consensus on fiscal reforms before the EU and the IMF will free up more cash to plug funding gaps in the next two years.

Ireland, meanwhile, wants to tap investors for funding in 2012 before its 85 billion euros EU-IMF bailout runs out the following year.

But investors believe Ireland will be unable to return to the market and instead will have to tap the European Union's permanent rescue fund in 2013, which might require some restructuring of privately held sovereign debt.

Reflecting this medium-term risk, Ireland's two-year and five-year paper are yielding close to 12 percent, more than its 10-year bonds on the secondary market.

Some 50 billion euros of the existing EU-IMF bailout has been earmarked for sovereign funding requirements with the remainder set aside to prop up the country's ailing banks.

Earlier this month, the IMF said whatever was left over after recapitalizing the banks could be channeled to the sovereign if there was a delay in returning to markets.

At the end of March, the Irish government said the banks needed 24 billion euros to bulletproof their balance sheets but Dublin hopes some five billion euros can be raised from imposing losses on junior bondholders and asset sales, meaning that 19 billion euros of the 35 billion would be tapped.

With important manufacturing and jobs data due next week, it could start to get even riskier.

That means nervous investors are likely to keep a lid on equity prices this year as they grapple with slowing global growth and a host of geopolitical risks from the Arab Spring to debt defaults in the euro zone.

The actions of some big Wall Street banks best show the shift in the risk-reward nexus. Over the last two weeks, UBS, Citigroup and Goldman Sachs have effectively lowered their view of what investors will be willing to pay for a dollar of corporate earnings this year.

Jonathan Golub, chief U.S. equity strategist at UBS in New York, made the decision to keep his S&P 500 Index target on hold, even though he increased his expectations of what S&P 500 companies would likely earn this year and next.

"Earnings are going to continue to surprise to the upside, but investors will continue to be reluctant to believe in the sustainability of earnings and, therefore, not give full credit to that," Golub said.

Golub raised his average S&P 500 earnings estimate to $101 from $96 for this year, but he left his year-end S&P 500target at 1,425. By doing that, Golub has effectively lowered his price-to-earnings (P/E) ratio -- the amount investors are willing to pay for a dollar of earnings -- to 14.1 from 14.8.

That amounts to an increase in the expected equity yield -- a measure of the return investors want -- to 7.1 percent from 6.8 percent.

That is significant because the expected price-to-earnings ratio was already below what investors have historically been willing to pay for S&P 500 earnings. The average trailing P/E ratio is 15.6 over the last five years and 19.2 since 1988, according to Standard & Poor's.

Golub argues that a batch of weak economic data pointing to slowing manufacturing, a weak housing market and stubbornly high unemployment is weighing on investor sentiment. Weakness in commodity markets and rotation into defensive sectors of the stock market testify to that shift.

SOFT JOBS DATA MAY HIT S&P

With next week's ISM national manufacturing survey for May expected to show more weakness and payroll data tipped to show under 200,000 jobs added during the month, risk aversion -- driven by fear about the economy -- could get worse before it gets better.

Goldman Sachs economist Zach Pandl said his firm is predicting 150,000 jobs were added in May, compared with a Reuters consensus of 185,000.

An ISM reading below 60 next Wednesday would show "the strongest period of growth has passed and investors may need to adjust their expectations going forward," said Michael Sheldon, chief market strategist at RDM Financial in Westport, Connecticut.

Economists in a Reuters poll expect the ISM reading to fall to 58 in May from 60.4 in April.

Goldman Sachs has also been tweaking its stocks outlook. It cut its year-end S&P 500 target, one of the highest on the Street, to 1,450 from 1,500, and lowered its 2012 earnings outlook to $104 to $106, citing lower global growth, higher commodity prices and slightly higher inflation.

Goldman analyst David Kostin, who is responsible for the S&P 500 target, was unavailable for an interview.

However Goldman's analysts wrote: "As we transition into the late expansion phase of the cycle later this year, the risk-reward balance for the S&P 500 is likely to become slightly less attractive."

Citigroup also slightly increased its earnings estimates for S&P 500 companies, lifting its 2011 forecast to $98 from $96.50. Although admittedly only a small increase, it chose to leave its S&P 500 target at 1,400.

Tobias Levkovich, Citigroup's chief U.S. equity strategist, could not be reached for comment.

The targets for all three banks are still at the upper end of analysts' estimates and are 5 percent to 8 percent above current levels.

Even if the index does get up to those levels later this year, those gains are slight compared to the near 80 percent run the S&P 500 has experienced since hitting a bear market low in March 2009.

For people like Bill Strazzullo, partner and chief investment strategist at Bell Curve Trading in Boston, that means the risks are firmly on the downside.

"The good news is there's some upside. The bad news is that you've probably made about 80 (percent) to 90 percent of this rally," Strazullo said. "From a 'bigger picture' standpoint, the risk-reward really doesn't make sense."

Strazullo believes the S&P 500 will revert toward fair value, which he places at 1,100, based on where most of the money in the S&P 500 is invested. He is looking at some longer-term bearish options trades to capitalize on the end of the March 2009 rally.

"I'm not saying we'll go all the way back there, but the point is, you could drop a lot further than most people anticipate."

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

The Commerce Department said on Friday consumer spending increased 0.4 percent, rising for a 10th straight month, after a 0.5 percent gain in March. It also said annual inflation rose at its fastest pace in 12 months.

Economists polled by Reuters had expected spending, which accounts for about 70 percent of U.S. economic activity, to rise 0.5 percent last month.

When adjusted for inflation, spending nudged up 0.1 percent last month after gaining 0.1 percent in March.

"This shows that the trend going in the second quarter is weaker than what people had thought. This promotes caution about projecting faster growth in the second quarter," said Pierre Ellis, a senior global economist at Decision Economics in New York.

Consumer spending rose at a 2.2 percent annual rate in the first quarter, braking sharply from a 4 percent pace in the October-December period. That contributed to holding back growth to a 1.8 percent pace during the quarter.

But a recent cooling in gasoline prices should ease some of the pressure on households and boost spending in the months ahead.

The national price for regular unleaded gasoline prices slipped to $3.90 a gallon in the week through Monday, according to the Energy Information Administration, after peaking just above $4 a gallon early in the month.

Government bond prices extended losses on the data, while stock index futures were little changed.

High food and energy prices in April kept inflation elevated last month, with the personal consumption expenditures price (PCE) index rising 0.3 percent after advancing 0.4 percent in March.

Compared to April last year, the index was up 2.2 percent, the biggest rise in a year, after increasing 1.8 percent in March.

The core PCE index -- excluding food and energy - increased 0.2 percent on month after rising 0.1 percent in March.

The core index, which is closely watched by Federal Reserve officials, increased 1.0 percent in the 12 months through April, the largest gain since September. The index rose 0.9 percent year-on-year in March and the Fed would like to see it closer to 2 percent.

Incomes rose 0.4 percent last month, in line with expectations and after a 0.4 percent increase in March. Disposable incomes adjusted for inflation were flat and savings fell to an annual rate of $570.6 billion, the lowest since August 2009, from $576.7 billion in March.

(Reporting by Lucia Mutikani, Additional reporting by Richard Leong in New York; Editing by Andrea Ricci)

This has been a choppy week for equities, with steep losses early offset by a rally in the past two days. The S&P 500 is down 0.6 percent for the week. Trading volume could be anemic on Friday ahead of Monday's Memorial Day holiday.

The losses early in the week came on worries about euro-zone sovereign debt, as well as concerns that global demand was slowing. While there are few catalysts seen for strong positive advances, technical support suggests there is a floor for stocks.

The Group of Eight leaders agreed on Friday that the global economic recovery was becoming more "self-sustained," though higher commodity prices were hampering further growth.

"Stocks are sitting on a well-balanced seesaw right now and there's not much that will make us go one way or the other," said Christian Wagner, chief executive officer at Longview Capital Management in Wilmington, Delaware.

"The G8 news was good, and we're sitting on major support levels, but people are always cautious going into a long weekend."

April pending home sales will be released at 10 a.m. (1400 GMT). Economists see a 1 percent decline compared with a 5.1 percent increase in the previous month. The final May Thomson Reuters/University of Michigan Surveys of Consumers is seen essentially holding steady from the preliminary May level.

Personal income and consumption data will be released earlier on Friday.

S&P 500 futures rose 0.8 point and were above 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 fell 4 points and Nasdaq 100 futures rose 0.5 point.

EBay (EBAY.O) and its online payment unit, PayPal Inc, on Thursday sued Google Inc (GOOG.O) and two executives, claiming they stole trade secrets.

Google, MasterCard (MA.N), Citigroup (C.N), Sprint (S.N) and transaction processing company First Data unveiled a system that will allow shoppers to use mobile phones to pay for items at the checkout counter.

Macau casino operator MGM China raised $1.5 billion from its Hong Kong initial public offering after pricing it at the top of its indicated range. The firm is co-owned by MGM Resorts International (MGM.N), shares of which rose 1 percent to $15.88 in light premarket trading.

The $7.1 billion merger of coal miners Massey Energy Co (MEE.N) and Alpha Natural Resources Inc (ANR.N) should be blocked or Massey's board will avoid responsibility for their reckless management, a shareholder attorney told a court late Thursday.

(Editing by Kenneth Barry)

(This article has been modified to correct the reference to the previous sentiment figure in paragraph 7)

Noting the chunky gains in Asian stocks, European stock index futures pointed to early gains while the S&P e-mini futures rose 0.1 percent, suggesting a higher start on Wall Street later in the day. .N

While the euro enjoyed a brief respite versus the U.S. dollar due to thinning yield differentials, it plumbed to a record low against the Swiss franc in a sign that traders remain focused on the rapidly escalating situation in the euro zone.

Jean-Claude Juncker, the head of euro zone finance ministers rattled markets when he said the International Monetary Fund could withhold the next slice of aid to Greece due next month, raising the specter of default, though his spokesman later softened some of his comments.

While markets have been under pressure in recent weeks due to a steady stream of bad news from the euro zone, Asian stocks and bonds have held up fairly well as recent data prints and positioning comforted investors on the region's growth outlook.

Korea .KS11 was among the top gainers as foreign investors trooped back, snapping a long selling streak. Solid current account surplus numbers in April too played its part.

Stocks outside Japan were up 0.7 percent on Friday even though the index is set for a fifth consecutive week of losses -- its longest string of losses since October 2008.

"Downside risks for large caps are capped by its increasingly attractive valuations," said Wang Aochao, an analyst with UOB Kay Hian in Shanghai. "So with small caps looking overvalued, it looks like investors will continue to switch out of them and into large caps in the near term."

Japanese shares were among the exceptions to the gainers, with the benchmark Nikkei average .N225 down 0.42 percent and the Topix index .TOPX down 0.3 percent on the day.

While concerns of a Greek restructuring kept investors cautious about adding big positions in stocks, they had no such qualms toward fixed-income assets as Asian policymakers stepped up their battle to fight inflation by tightening policy.

Latest data from Thomson Reuters Lipper showed net inflows of $94 million into high yield funds and a $1 billion inflow into corporate investment grade funds in the week of May 25.

DESPERATELY SEEKING CONFIDENCE

In currency markets, the euro turned higher after its drop this week stalled right near its 100-day moving average and also the bottom of the cloud on daily Ichimoku charts, a form of Japanese technical analysis popular among market players.

Still, it is expected to stay within recent established trading ranges until confidence is restored on the Greek debt crisis and the market refocuses on the outlook for euro zone interest rates, which would be supportive for the single currency, Brown Brothers Harriman strategists said in a note.

For now though, the double whammy of weak U.S. economic data and falling U.S. Treasury yields offered support to the euro.

In another sign that the U.S. economy has hit a soft patch, jobless claims for last week unexpectedly rose while annual GDP growth came in lower than analysts had expected.

The weak data took the wind out of commodity markets, particularly oil, which dropped more than 1 percent overnight, but recovered to hold above the $100 per barrel line.

In bond markets, U.S. Treasuries rallied and benchmark yields fell to new six-month lows with ten-year note yields breaking below their 200-day moving average. They were last at 3.06 percent, their lowest level since early December.

Other safe-haven assets like gold and silver received a boost from the Greece situation. Silver recovered after falling in the previous session while gold inched higher.