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Analysts have been lowering earnings estimates of late and nervousness about the U.S. economic picture abounds, especially after Friday's poor June jobs report.

However, profit growth could still be strong in the second quarter -- and that could boost stocks. The Standard & Poor's 500 .SPX fell 0.4 percent in the second quarter, but rallied in recent days on hopes for economic improvement.

Over the last month, analysts have revised downward their earnings estimates for S&P 500 companies, with the mean change in earnings estimates a negative 6.4 percent, according to Thomson Reuters StarMine data.

"I think there's going to be a lot of anxiety going into it, and I think companies are going to continue what they've done for the last few quarters: Put out better-than-expected numbers, and guidance should be OK," said Scott Billeaudeau, portfolio manager at Fifth Third Asset Management, in Minneapolis.

S&P 500 components' earnings are expected to have increased an average of 7.3 percent in the second quarter from a year ago, down from first-quarter growth of 18.9 percent, Thomson Reuters data showed.

But the number could jump if most companies beat analysts' forecasts. Early estimates for first-quarter profit growth were at about 13 percent.

"The general economic data is suggesting some softness in the overall economy both globally and in the U.S. ... so that drives somewhat more realistic expectations for companies," said Natalie Trunow, chief investment officer of equities of Calvert Investment Management in Bethesda, Maryland, which manages about $14.8 billion.

In the coming week, the Federal Reserve will release minutes of its June 21-22 policy-making meeting. Among the U.S. economic indicators on tap are June retail sales, June inflation readings from the U.S. Producer Price Index and the U.S. Consumer Price Index, industrial production and capacity utilization for June, and the preliminary July reading on consumer sentiment from the Thomson Reuters/University of Michigan Surveys of Consumers.

BANKS UNDER THE GUN

Financial services companies have seen the biggest downward revisions in earnings estimates in the last 30 days, with banks taking some of the biggest hits, including Goldman Sachs (GS.N) and Morgan Stanley (MS.N).

JPMorgan Chase (JPM.N) will be the first of the big banks to report, with results due on Thursday. Results from top tech player Google (GOOG.O) also are expected Thursday, while aluminum company Alcoa (AA.N) unofficially starts the season with earnings after the bell on Monday.

The S&P financial index .GSPF dropped 6.3 percent in the second quarter as worries escalated about the impact of the euro-zone debt problems on the global economy. The mean change for earnings estimates in the sector in the last 30 days is a negative 34.4 percent, StarMine data showed.

DISASTERS AND DISAPPOINTMENTS

Analysts have also said the aftermath of Japan's earthquake, months of extraordinary weather in the United States, and rising food and commodity prices took a toll on companies in the second quarter.

StarMine analysis showed companies, including Platinum Underwriters Holdings (PTP.N), were likely to disappoint with results because of tornado damage claims.

But companies have kept costs in check and that should support stronger results, while also giving a boost to stock prices, he said.

"I think things underneath the macro, global, political noise continue to percolate," said Mike Jackson, founder of Denver-based investment firm T3 Equity Labs. But "you're going to see higher-quality companies showing the surprises this quarter (versus) last."

Based on his own analysis, he expects industrials and utilities to surprise to the upside, especially for companies involved in "machinery, and roads and rails" and for electric utilities.

On the flip side, he sees a high probability for earnings disappointments in health care, consumer staples and materials sectors.

An S&P health-care index .GSPA led gains in the S&P 500 in the first half of the year as the market shifted to defensive shares, with the sector up 14 percent since the start of the year, followed by an S&P energy index .GSPE, up 11 percent.

The health-care sector may be subject to profit-taking once earnings start after its strong run so far this year, according to Tobias Levkovich, Citigroup's chief U.S. equity strategist, who made the point in a research note.

Some analysts expect total upside surprises to be less than in previous quarters, with the percentage of companies beating expectations likely to fall in the mid-60s percentage range, below the 70-percent range, where it has been.

S&P 500 earnings overall could beat estimates by a "modest" 1 percent to 3 percent, Charles Blood, senior market strategist at Brown Brothers Harriman, wrote in a research note.

"Margins typically rise in the second quarter, but our primary concern and one of the biggest investment debates, is, 'How much room do companies have for further improvement?'" he wrote.

(Reporting by Caroline Valetkevitch; Editing by Jan Paschal)

As Cameron fielded hostile questions over why he had hired the paper's former editor Andy Coulson in 2007, despite knowing that one of his journalists had been jailed for hacking into voicemails in search of scoops, Coulson was being arrested by police on suspicion of conspiring in the illegal practice.

Underlining the seriousness of the threat facing his News Corp empire, Murdoch will fly to London on Saturday to deal with the crisis, according to two people familiar with his plans.

And in a sign of how it could be escalating further, The Guardian newspaper reported on its website that police are investigating evidence an executive at Murdoch's News International unit may have deleted millions of emails from an internal archive in an apparent attempt to obstruct police investigations. A spokeswoman for Murdoch's News International unit said the allegation was "rubbish".

"We are cooperating actively with police and have not destroyed evidence," she said.

Cameron said he took "full responsibility" for his decision to appoint Coulson, who quit Downing Street in January when police relaunched inquiries. But the premier rebuffed criticism and strove to spread the blame for an affair that has generated public outrage against the press, politicians and police.

"Murder victims, terrorist victims, families who have lost loved ones in war..." he said: "That these people could have had their phones hacked into in order to generate stories for a newspaper is simply disgusting."

So widespread was the rot, Cameron told an emergency news conference after Murdoch dramatically shut down his best-selling Sunday paper, that only a completely new system of media regulation and a full public inquiry into what went wrong over a decade at News of the World and beyond would meet public demand.

"This scandal is not just about some journalists on one newspaper," Cameron said. "It's not even just about the press. It's also about the police. And, yes, it's also about how politics works and politicians too."

In another indication of spreading fallout, police said they had arrested a 63-year-old man in Surrey in southern England over allegations of inappropriate payments to police. A police spokesman said the man was not a serving policeman.

News of the World and other newspapers have been accused of paying the police for information.

Police also raided another tabloid, the Daily Star, earlier on Friday over allegations of phone hacking.

PRESS BARONS' GRIP

While defending himself for hiring Coulson, Cameron said politicians of all parties had been in thrall to press barons for decades. He indicated a new assertiveness toward the Murdoch empire by withholding overt endorsement of News Corp's controversial bid for British broadcaster BSkyB.

Shares in the pay-TV chain fell 7.6 percent after the media ministry also said it would take events at the News of the World into account before giving its approval to the takeover. News Corp shares in New York lost around 4 percent.

Cameron's opponents on the left want to block the $22-billion bid for the 61 percent of BSkyB that he does not already own on the grounds it would give Murdoch too much political clout. The day's events created new uncertainties for investors who had welcomed the government earlier giving its blessing.

In a mark of the drama of larger-than-life personalities at play, Cameron also criticized his friend and neighbor Rebekah Brooks, Coulson's predecessor as editor and now a top executive and confidante of Murdoch. She should have resigned herself, he said, after closing down the newspaper at a cost of 200 jobs.

Cameron told reporters he had heard that Brooks offered her resignation. "I would have taken it," he said.

BROOKS' "TOXIC" BRAND

Journalists putting together the final edition of the 168-year-old title, Britain's biggest-selling Sunday paper, had an emotional, sometimes angry, meeting with Brooks, who told them, according to a staffer who was present, that the News of the World brand had become "toxic". Advertisers and readers bailed out following allegations this week of serial phone hacking.

But the 43-year-old, whose mane of red hair, sharp wit and seemingly charmed relationship with the 80-year-old Australian-born media mogul have long made her an object of fascination for fellow tabloid journalists, made clear she was staying on to manage News International, Murdoch's British newspaper arm.

Brooks denied the company, which many assume will soon fill the gap left by the News of the World by extending publication of the Sun daily to Sundays, was simply combining a useful cost-saving measure with a theatrical attempt to remove a threat to its expansion in television.

She has denied knowing that journalists on the paper were hacking the voicemails of possibly thousands of people. But she has become the focus of anger among the 200 News of the World staff sacked by Murdoch's son James with little ceremony.

There was "seething anger" and "pure hatred" directed toward her, one reporter said: "We think they're closing down a whole newspaper just to protect one woman's job."

Fellow journalists saluted the end of a venerable, muckraking title: "Hacked To Death" headlined Murdoch's own Times. "Paper That Died Of Shame" said the tabloid Daily Mail.

Nonfarm payrolls rose only 18,000, the weakest reading since September, the Labor Department said on Friday, well below economists' expectations for a 90,000 rise.

The unemployment rate climbed to a six-month high of 9.2 percent, even as jobseekers left the labor force in droves, from 9.1 percent in May.

"The message on the economy is ongoing stagnation," said Pierre Ellis, senior economist at Decision economics in New York. "Income growth is marginal so there's no indication of momentum.

U.S. stock index futures fell sharply on the data, while U.S. bond prices rose. The dollar rose against the euro.

The government revised April and May payrolls to show 44,000 fewer jobs created than previously reported.

The report shattered expectations the economy was starting to accelerate after a soft patch in the first half of the year. It could prompt calls for the Federal Reserve to consider further action to help the economy, but Fed officials have set a high bar.

The U.S. central bank wrapped up a $600 billion bond-buying program last week designed to spur lending and stimulate growth.

"This confirms our view that the Fed will continue to keep rates on hold into 2012 and if weak employment continues it will be pushed out even further," said Tom Porcelli, chief economist, RBC Capital Markets in New York.

Hopes were high that the economy was starting to find firmer ground as motor vehicle manufacturers ramped up production and gasoline prices descended from their lofty levels.

Economic activity in the first six months of the year was dampened by rising commodity prices and supply chain disruptions following Japan's devastating earthquake in March.

WHITE HOUSE HEADACHES

Signs the labor market is struggling is a major blow for the Obama administration, which has struggled to get the economy to create enough jobs to absorb the 14.1 million unemployed Americans.

The economy is the top concern among voters and will feature prominently in President Barack Obama's bid for re-election next year. So far, the economy has regained only a fraction of the more than 8 million jobs lost during the recession.

"Today's report is more evidence that the misguided 'stimulus' spending binge, excessive regulations, and an overwhelming national debt continue to hold back private-sector job creation in our country," House of Representatives Speaker John Boehner said in a statement.

The economy needs to create between 125,000 and 150,000 new jobs a month just to absorb new labor force entrants.

The private sector added 57,000 last month, accounting for all the jobs created, with government employment shrinking 39,000 because of fiscal problems at local and state governments.

Details of the report showed widespread weakness, though factory payrolls rebounded 6,000 after contracting in May for the first time in seven months, with the recovery reflecting a step-up in motor vehicle production.

Construction employment fell 9,000 last month after declining 4,000 in May. Government employment declined for an eighth straight month as municipalities and state governments continued to wield the ax to balance their budgets.

The report also showed the average workweek fell to 34.3 hours from 34.4 hours. Employers have been reluctant to extend hours because of the uncertainty surrounding the recovery.

Average hourly earnings slipped a penny, more evidence that wage-driven inflation is not a risk.

(Editing by Neil Stempleman)

* Data at 1230 GMT is expected to show that U.S. companies stepped up hiring in June as the economy recovered from a stumble in recent months, although job growth was not expected to be strong enough to eat into high unemployment.

* Nonfarm payrolls are forecast to have risen by 90,000, according to a Reuters survey conducted last week. In May, employment rose a paltry 54,000. Many economists raised their forecasts on Thursday after a stronger-than-expected reading on U.S. private hiring from payrolls processor ADP, and they now expect gains of anywhere between 125,000 and 175,000.

* Caterpillar Inc (CAT.N), the world's largest maker of heavy equipment, said China's regulator had approved its acquisition of U.S. mining equipment firm Bucyrus International (BUCY.O), paving the way for the company to complete a deal announced in November.

* The Commerce Department releases wholesale inventories for May at 1400 GMT. Economists forecast May inventories to rise 0.7 percent versus a 0.8 percent increase in April.

* At 1430 GMT, Economic Cycle Research Institute (ECRI) releases its weekly index of economic activity for July 1. In the prior week the index read 126.4.

* In a startling response to the scandal engulfing Rupert Murdoch's media empire, the British newspaper arm of News Corp (NWSA.O) announced it would publish the 168-year-old News of the World for the last time this weekend.

* The IMF executive board on Friday is expected to approve the disbursement of just over 3 billion euros for Greece, in time to help the country pay debts falling due this month.

* President Barack Obama told top U.S. lawmakers on Thursday he would not sign a short-term extension of the U.S. debt ceiling and said negotiators would work through the weekend on a deal to avoid a debt default.

* Air France-KLM (AIRF.PA) hopes to announce the results of a contest between Airbus (EAD.PA) and Boeing (BA.N) to supply the European airline with wide-bodied jets during the summer, its chief executive said on Thursday.

* Newport Corp (NEWP.O), a U.S. manufacturer and distributor of precision components, is to buy Israeli group Ophir Optronics (OPIR.TA) for $230 million, to strengthen Newport's position in thermal imaging products.

* Google Inc (GOOG.O) is leaving open the door to more co-operation with social-media giants Facebook and Twitter, and believes there is room for multiple social networks as it rolls out its own, executive chairman Eric Schmidt said.

* The FTSEurofirst 300 .FTEU3 index of top European shares rose 0.2 percent on Friday after rising 0.4 percent in the previous session to its highest close in five weeks. Japan's Nikkei average .N225 hit a four-month peak.

* The Dow Jones industrial average .DJI shot up 93.47 points, or 0.74 percent, to 12,719.49. The Standard & Poor's 500 Index .SPX gained 14 points, or 1.05 percent, to 1,353.22. The Nasdaq Composite Index .IXIC climbed 38.64 points, or 1.36 percent, to 2,872.66.

(Reporting by Atul Prakash)

As allegations multiplied that its journalists hacked the voicemails of thousands of people, from child murder victims to the families of Britain's war dead, the tabloid hemorrhaged advertising, alienated millions of readers and posed a growing threat to Murdoch's hopes of buying broadcaster BSkyB.

The announcement, one of the most dramatic in the 80-year-old press baron's controversial career, is widely seen as an effort to prevent the crisis from spreading beyond the News of the World to more lucrative parts of Murdoch's empire.

The scandal has also become a huge embarrassment for British Prime Minister David Cameron because of his close ties to some of the figures at the center of the controversy.

Murdoch's son James, who chairs the British newspaper arm of News Corp, said News of the World has been "sullied by behavior that was wrong."

"Indeed, if recent allegations are true, it was inhuman and has no place in our company," he said in a statement. "The News of the World is in the business of holding others to account. But it failed when it came to itself."

He praised the News of the World for "a proud history of fighting crime, exposing wrong-doing" and setting the nation's news agenda. But he said the paper, which his father bought in 1969, was unviable because of the scandal.

The announcement that the paper's final issue will be on Sunday, July 10 may even be a signal that the famously excessive practices of British tabloid journalism will be less prevalent in the future.

The news came as a complete shock to its 200 staff.

There were gasps and sobbing as they were told of the closure of the 168-year-old title, which from its earliest days in the Victorian era sought to titillate the British working class with sensational journalism about sex and crime.

The profits of the final edition of the News of the World, which was acquired by the Australian-born Murdoch back in 1969 in his first foray into Fleet Street, will go to charity.

"No one had any inkling at all that this was going to happen," said Jules Stenson, features editor of News of the World.

On the surface, it seems like a bold gamble to sacrifice a historic title that had helped establish Murdoch in a British newspaper industry that he has dominated in recent decades.

The closure doesn't mean that Murdoch's problems from the scandal are over. Growing popular and political anger over the phone hacking saga had spurred concerns that there could be snags in securing government approval for News Corp's $14 billion bid for BSkyB, of which it already owns 39 percent.

Stephen Adams, a fund manager at Aegon Asset Management, which is one of the biggest shareholders in BSkyB, told Reuters he saw News Corp's move as aimed at restoring or remedying a tarnished reputation.

"But we also critically see it as a reflection of News Corp's desire to progress the BSkyB bid and have full ownership of the company," he said.

Cameron's right-of-center government had already given an informal blessing to the takeover, despite criticism on the left that it gave Murdoch too much media power.

While the costs of closing the News of the World will be modest, investors and analysts are still concerned about the wider implications of the saga. News Corp's U.S. shares fell more than 5 percent on Wednesday, and edged 0.23 percent lower on Thursday in a rising overall market.

"I don't see how this (BSkyB) deal can go ahead. It's politically totally unacceptable now," said Alex Degroote, media analyst at Panmure Gordon. "To me, it's an explicit admission of culpability."

Still, others said that any attempt to block the BSkyB deal at this late stage would likely spark a legal challenge from News Corp, and one the company would likely win. A delay is likely, "but they can't delay it forever so barring some major development this deal is going to get agreed," said media consultant Steve Hewlett.

The outrage targeted at the News of the World has turned attention on Cameron's own links to the paper, and in particular his friendship with Murdoch's close confidante and head of his British newspaper arm Rebekah Brooks.

Murdoch still faces pressure to remove Brooks, a friend of Cameron's. Her editorship of the News of the World a decade ago is at the heart of some of the gravest accusations.

Cameron has already been hit by the scandal: he chose former News of the World editor Andy Coulson as his communications director, even though Coulson was caught up in the hacking scandal. One of his reporters and a private investigator had been convicted of hacking into phones of members of the royal family, although Coulson insisted he knew nothing about the phone hacking.

As new allegations surfaced, Coulson had to resign from Cameron's team earlier this year. The Guardian newspaper reported on Thursday that Coulson would be arrested on Friday. Police declined to comment.

SUNDAY SUN

It is not yet clear if the scandal will damage James Murdoch, the presumed successor to his father, and other News Corp executives such as Les Hinton, who is now running the company's Dow Jones operation but was previously head of Murdoch's British newspaper arm.

Speculation is rife that the company will turn The Sun, its tabloid daily that is Britain's best-selling newspaper, into a seven-day operation rather than the current six to tap the Sunday market. Despite difficult times for newspapers, the News of the World is still selling 2.6 million copies a week.

The website www.sunonsunday.co.uk was registered on Tuesday by an unknown party.

"Our view is that this does not mean the News of the World will be closed. It will simply mean that there will be a seven-day Sun. The stain on the brand was going to be permanent, and this is a perfectly sensible decision," said Claire Enders, head of Enders Analysis Media Consultancy.

Journalists said that an emotional News of the World editor Colin Myler had read out the announcement at the east London newsroom where Murdoch changed the face of British journalism in the 1980s by breaking the power of the printing unions.

News that Brooks would remain in place as chief executive triggered anger from staff. James Murdoch told Sky News he was satisfied Brooks knew nothing of the crimes allegedly committed when she was editor.

Asked how staff felt toward Brooks, one reporter said there was a sense of "seething anger" and "pure hatred" directed toward her: "We think they're closing down a whole newspaper just to protect one woman's job."

British opposition leader Ed Miliband said Brooks should go, echoing the view of the journalists' trade union. The union said some journalists at The Sun had walked out in support of their colleagues on Thursday evening.

WAR DEAD

Investigations into phone hacking at the News of the World have been bubbling for several years and until recently only celebrities and other well-known figures were believed to have been victims.

But the scandal exploded earlier this week after revelations an investigator working for the paper may have listened to -- and deleted -- the voicemail messages of a missing 13-year-old schoolgirl, later found murdered.

The scandal deepened on Thursday with claims News of the World hacked the phones of relatives of British soldiers killed in action in Iraq and Afghanistan. Britain's military veterans' association broke off a joint lobbying campaign with the paper and said it might join major brands in pulling its advertising.

Many of the paper's readers are ardent supporters of the armed forces so suggestions it may have hacked the phones of the families of grieving service personnel only further alienated a core readership already horrified by suggestions its reporters accessed the voicemails of missing children and bombing victims.

The main accusations are that journalists, or their hired investigators, took advantage of often limited security on mobile phone voicemail boxes to listen in to messages left for celebrities, politicians or people involved in major stories.

Disclosure that the practice involved victims of crime came when police said a private detective working for the News of the World in 2002 hacked into messages left on the phone of murdered schoolgirl Milly Dowler while police were still looking for her.

Police have also been criticized over allegations officers took money from the News of the World for information. London's Evening Standard newspaper said on Thursday that police officers took more than 100,000 pounds ($160,000) in payments from senior journalists and executives at the paper.

Shortly before the announcement the paper would be closing for good, advertising website Brand Republic said the paper had lost all advertising for this weekend's edition.

Before the controversy worsened, formal approval for the BSkyB deal had been expected within weeks after the government gave its blessing in principle. But it now seems unlikely for months, although officials denied suggestions that they were delaying a decision because of the scandal.

"The Secretary of State has always been clear that he will take as long as is needed to reach a decision. There is no 'delay' since there has been no set timetable for a further announcement," a government spokesman said. Some British media reported that a decision was now expected in September.

(Writing by Alastair Macdonald, Jodie Ginsberg and Tiffany Wu; Editing by Jon Boyle in London, Martin Howell in New York)