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Deep concern persists that European leaders will fall short when they try to flesh out the details of how their rescue fund can tap sufficient resources to backstop Greece and to handle a potential government financing crisis in Italy or Spain.

Europe is looking to emerging economies to provide the extra financial firepower to strengthen the fund four- to five-fold, to about 1 trillion euros, a promise that could materialize at a Group of 20 summit in France on Thursday and Friday.

The response so far from China on strengthening the fund has been very cautious, and market experts want to see a fund with resources twice the size under discussion in Brussels. That has set the stage for possible unsettling disappointment in the days ahead.

"If the absolute amount is not enough, we will be back to the storms. The break in the clouds may only last a few hours," said Ellen Zentner, senior U.S. economist at UBS.

Stronger-than-expected U.S. corporate earnings last week and third-quarter U.S. growth at a solid 2.5 percent, underpinned by surging business investment and a pick-up in consumer spending, have buoyed prospects for the global economy.

The drawdown in inventories in the third quarter also points to solid U.S. growth continuing through the end of the year.

Several Wall Street firms revised up their outlooks. JP Morgan raised its fourth-quarter economic growth forecast to 2.5 percent from 1 percent.

But talk to any economist or market strategist and every positive statement about the economic outlook is heavily hedged with warnings about what could yet go wrong.

The list is long.

Europe probably is already in recession; its politicians could fail to build a strong enough firewall in time to prevent financial contagion; and U.S. consumers are too heavily indebted to support strong growth next year.

Looming in the background are the U.S. budget deficit talks. Risks persist that lawmakers will reach stalemate by the end of the year, which would automatically trigger U.S. fiscal contraction at the start of 2012 if tax cuts and jobless benefits expire.

"The politics are improving in Europe, but the economic data is deteriorating and recession risks are rising. In the United States it is the exact opposite," said Kurt Karl, senior vice president at Swiss Re American Holdings Corp.

Any of these factors could put the brakes on recovery.

FUTURE ACTION

The European Central Bank is widely expected to lay the foundation for an interest rate cut at its meeting on Thursday, citing the economic weakness in the 17-nation currency bloc. Euro zone manufacturing and services data due on Wednesday may confirm the tilt into recession seen in flash PMIs last week.

The ECB probably will also signal it will continue to purchase bonds issued by debt-heavy euro zone countries to promote financial stability, a move that gives leaders more time to finalize details of the debt plan.

Most analysts doubt Italian Mario Draghi will embark on bolder action at his first meeting as ECB president, although there is an outside chance for a rate cut.

Federal Reserve policymakers also are expected to tread cautiously at their meeting on Tuesday and Wednesday.

The improved U.S. data diminish the argument for further monetary easing, though Fed Chairman Ben Bernanke at his news conference on Wednesday is likely to repeat his disappointment at the pace of recovery and explore further options for supporting growth in face of the considerable risks ahead.

Several Fed policymakers have suggested the central bank needs to do more to support housing, the central problem for the U.S. economy.

Employment growth is stuck in a rut and consumers are digging into their savings to spend. As long as the American consumer, who drives 70 percent of all U.S. economic activity, is buried under a mountain of debt -- much of it mortgage debt -- and many houses remain worth less than the mortgage, consumer demand will remain weak and business hiring paltry.

Employment data on Friday is expected to show 95,000 new jobs outside the farm sector were added in October, a slight improvement from the prior month. But payroll growth since April has averaged only 72,000, less than one-third the pace needed to reduce the 9.1 percent jobless rate, and down from a 161,000 average rate in the prior seven months.

Income growth is negative once adjusted for inflation, and household debt loads at 133 percent of disposable income are too high to support much consumption.

"The underlying problem is to find where sustainable spending growth will come from," said David Mann, U.S. economist for Standard Chartered.

Europe in recessionary territory and an impaired U.S. consumer also point to a deceleration in exports from China when its manufacturing index is released on Tuesday, rounding out a picture of a vulnerable world economy.

(Editing by Dan Grebler)

The head of Europe's rescue fund sought to entice China on Saturday to invest in the facility by saying investors may be protected against a fifth of initial losses and that bonds could eventually be sold in yuan if Beijing desires.

Though China has expressed confidence that Europe can survive its crisis, it has made no public offer to buy more European government debt.

Xinhua, in an English-language commentary, said China could not stand by while its largest trading partner foundered.

"Beijing's good-will gesture is a good response to those who see China as a threatening rival to Europe. Despite differences in politics, economy and culture, China and the EU are still good friends and partners," it wrote.

"However, amid such an unprecedented crisis in Europe, China can neither take up the role as a savior to the Europeans, nor provide a 'cure' for the European malaise," Xinhua added.

"Obviously, it is up to the European countries themselves to tackle their financial problems. But China can do within its capacity to help as a friend."

Such commentaries offer an insight into government thinking, even if they do not reflect official policy.

China's pile of $3.2 trillion in foreign exchange reserves, the biggest in the world, keeps growing thanks to trade surpluses and capital inflows.

Analysts estimate that China holds about a quarter of its foreign exchange in euro assets and there are few other places for it to park investments of such a scale.

The government has said it has confidence in the euro and in the European Union's efforts to tackle the crisis. But comments from Chinese economists and in state media have also revealed anxieties about the security of euro assets.

Expanding the European Financial Stability Facility (EFSF) to 1 trillion euros is key to the euro zone's latest anti-crisis plan, put together at a Eurozone summit last week.

Details on how this would be done have yet to be finalized and European leaders are under pressure to show the plan will work.

Xinhua said Europe needed to make "more concerted efforts".

The G20 summit in Cannes next month should accord China the respect it deserves, the commentary added.

"It is advisable that at the summit European leaders take heed of the voices of emerging economies, whose remarkable contribution to world economic recovery and growth deserves better understanding and reciprocal treatment."

(Reporting by Ben Blanchard; Editing by Ron Popeski)

Qantas said it had canceled 447 flights affecting more than 68,000 passengers since grounding over 100 aircraft around the world on Saturday.

The airline is seeking to bring to a head a prolonged and increasingly bitter battle with its unions over pay, working conditions and plans to set up two new airlines in Asia.

Qantas plans to cut 1,000 jobs and order $9 billion of new Airbus aircraft as part of a makeover to salvage its loss-making international business.

The abrupt escalation in the dispute angered the government and came as an embarrassment for Prime Minister Julia Gillard, who was hosting a summit of Commonwealth leaders in the western city of Perth, 17 of them booked to fly out on Sunday with Qantas.

"There is no case for this radical overreaction," Assistant Treasurer and former senior union official Bill Shorten told the Australia Broadcasting Corp.

"Sixty-eight thousand Australians and the tourism industry has been grossly inconvenienced by this high-handed ambush of the passenger."

Gillard, criticized for not intervening earlier in the dispute, said the tribunal hearing in Melbourne was needed to quickly resolve the impasse.

"We took this action because we were concerned about the damage to the economy," she told reporters in Perth.

"The government is arguing for an end to the industrial action," she said, adding that most leaders had made alternate flight plans.

BOLD, UNBELIEVABLE DECISION

Qantas chief executive Alan Joyce estimated the "bold decision, an unbelievable decision" to lock out workers and ground the fleet would cost the company A$20 million ($21.4 million) a day.

He said the special labor tribunal, which reconvened after a late-night meeting on Saturday, would have to terminate all industrial action before the airline could resume flying.

"We're hoping a determination is made today and that will give us certainty about what we can do and start planning to get the airline back in the air," Joyce told Australia's Sky News.

He indicated Qantas could be flying again on Monday if the Fair Work Australia tribunal ordered the termination of industrial action on Sunday.

Qantas and the unions would then have 21 days to negotiate a settlement before binding arbitration would be imposed.

The lockout is the latest in a rising tide of industrial unrest in Australia as unions increase pressure for a greater share of profits amid tight labor markets and a boom in resource prices.

It threatens to become the most significant disruption to Australian aviation since a dispute in 1989 that lasted for six months and had a significant impact on tourism and other business. Industrial action by engineers cost Qantas around A$130 million in 2008.

Qantas faced angry shareholders and workers at a shareholders' meeting on Friday when the company said the labor dispute since September had caused a dive in forward bookings and was costing it A$15 million a week.

The shareholders backed hefty pay rises to senior Qantas executives, including a A$5 million package for Joyce.

The action sparked an angry response from Australia's Transport Minister Anthony Albanese on Saturday.

"I'm extremely disappointed. What's more, I indicated very clearly to Mr Joyce that I was disturbed by the fact that we've had a number of discussions and at no stage has Mr Joyce indicated to me that this was an action under consideration," he said.

Tony Sheldon of the Transport Workers Union said the lockout was cynical and pre-planned.

"It's a company strategy that shareholders should have been told about, that the Australian community should have been told about, not ambushed in the dead of night," he said.

The Australian and International Pilots Association (AIPA) was flabbergasted at the move to ground the fleet, describing it as "brinkmanship in the extreme".

"Alan Joyce is holding a knife to the nation's throat," said Richard Woodward, vice-president of AIPA.

MASSIVE DISRUPTIONS

Qantas check-in desks across Australia were empty on Sunday morning as customers scrambled for alternative travel arrangements. The airline usually flies more than 60,000 people a day.

Australian rival Virgin Blue said it was adding an extra 3,000 seats on its domestic network on Sunday to assist Qantas passengers.

Qantas's decision left many passengers venting their anger after they were stranded in 22 cities around the globe.

"To resolve this at the expense of paying customers on one of the biggest flying days in Australia is quite frankly ... bizarre, unwarranted and unfair to the loyal customers that Australia has," a businessman, who gave his name only as Barry, told Sky TV at Melbourne airport.

This weekend is one of Australia's busiest for travel, with tens of thousands traveling to the hugely popular Melbourne Cup horse race on Tuesday, dubbed "the race that stops the nation".

Shares in the airline have fallen almost 40 percent this year, underperforming the 8 percent fall in the benchmark index.

($1 = 0.933 Australian Dollars)

(Additional reporting by Narayanan Somasundaram and Ed Davies in SYDNEY, Rebekah Kebede and Michael Perry in PERTH, James Grubel in CANBERRA; Writing by Lincoln Feast; Editing by Jonathan Thatcher)

Spanish Prime Minister Jose Luis Rodriguez Zapatero urged the G20 countries least affected by the crisis to provide "urgent stimulus plans" to shield the global economy.

Europe's debt crisis looks set to dominate the summit of Group of 20 leading economies in France from November 3-4.

The gathering in Cannes will take place a week after euro zone leaders reached a deal to recapitalize their banks, boost the firepower of a euro zone rescue fund and impose hefty losses on holders of Greek debt.

"We hope these deals, together with those made by the G20 next weekend ... restore the confidence needed to keep the economy moving," Zapatero told leaders at the Ibero-American summit in Paraguay.

"I hope they will rise to the challenge next week. The United States has a role, the Federal Reserve has a role, all the central banks of big countries have their role -- of course, China, India, Brazil, the Europeans and Japan," he said during a news conference.

"The G20's response has two key elements. Firstly, those of us who have been working to consolidate our fiscal position cannot change course. But those countries that have the margin to incentivize economic activity have to adopt urgent stimulus plans. If not, the global economy will be affected."

In the last 18 months, Zapatero has made cuts and implemented reforms to show Spain is serious about fiscal discipline and to avoid a sell-off in its debt on concerns it would need a Greek-style bailout.

Portuguese Prime Minister Pedro Passos Coelho told leaders gathered in Asuncion the "crisis was not just European."

"This is a global crisis," said. "It's a crisis that calls on all of us, whether in Europe, in Latin America or any other continent."

A source from the Portuguese delegation said Passos Coelho asked Mexican President Felipe Calderon to tell fellow G20 members that Washington should help resolve the crisis "by boosting trade and also with financial help."

"The European Union has already responded to the crisis. It hopes to find in the G20 setting a global response to a crisis that is systemic and global," the source added, speaking on condition of anonymity.

Financial markets rallied strongly this week after European leaders hammered out the crisis deal, although analysts quickly warned that details of the rescue could still take weeks or even months to work out.

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."

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