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Investors expect the Federal Reserve to take steps to pull down long-term interest rates when policymakers meet on Tuesday and Wednesday to help revive the persistently weak U.S. economy.

Fed Chairman Ben Bernanke, speaking in Jackson Hole, Wyoming, on August 26, said the Fed's Open Market Committee would meet for two days in September instead of the scheduled one day to discuss ways to boost the recovery.

But even with expectations of more intervention to boost the economy, investors will keep a close eye on developments in Europe.

Any lack of progress or backsliding on efforts to get the currency bloc's fiscal house in order will renew worries the crisis could seriously damage the world financial system and major economies.

"The Fed is really going to dominate next week," said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont.

"But the market has been trying to work its way higher here, trying to feel if maybe the European thing won't cascade out of control."

Treasury Secretary Timothy Geithner, at a meeting of euro zone finance ministers in Poland on Friday, urged them to leverage their bailout fund to better tackle the debt crisis, but there was no agreement on what steps to take.

While the Standard & Poor's 500 has been moving upward over the past week, the benchmark index has been stuck in roughly a 100-point range over the last six weeks.

It is likely to run into resistance near the 50-day moving average of about 1,228, with analysts also pointing to the 1,250 level as the next significant hurdle.

"This is really a consolidation phase, which is normal after the kind of early August swoon that we had. So far this trading range is developing in a very positive and healthy way," said Gail Dudack, chief investment strategist at Dudack Research Group in New York.

"Longer term, the market is looking better but we are getting very close to that resistance at 1,250 which would be pretty surprising if we can break above that at this early juncture. It could take a little more time, people shouldn't be disappointed."

The week's economic calendar includes reports on the beleaguered housing market along with weekly initial jobless benefits claims.

Housing "is dead and it will stay dead, and I don't expect anything out of unemployment either," said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey.

"The biggest event is Bernanke."

Companies due to post earnings next week include homebuilder Lennar Corp, Nike Inc, General Mills Inc as well as technology companies Adobe Systems, Red Hat Inc and Oracle Corp.

FedEx Corp, the No. 2 U.S. package delivery company, which is seen as a proxy for how the economy is performing, is also scheduled to report quarterly results.

Though earnings have managed to hold up in the face of a lackluster recovery, analysts worry this might not last if the financial system suffered the shock of a Greek debt default.

But while many feel Bernanke has telegraphed the plans for the Fed meeting, the euro zone debt crisis remains an uncertainty that could knock the market lower.

"It's absolutely the wild card because Europe's problems may be similar to what we saw in 2008, but they are much more difficult to deal with because country debt is far more difficult to deal with than mortgage debt," Dudack said.

She added that having so many countries that are part of a committee trying to solve the problem only added to the complications.

(Reporting by Chuck Mikolajczak; Editing by Kenneth Barry)

The Nasdaq stock market posted its biggest weekly advance since July 2009, and gains elsewhere in global equity markets suggested risk aversion has dissipated.

The euro headed for its best week in eight against the U.S. dollar, even as it slipped 0.7 percent to $1.3785 on Friday. The announcement on Thursday that the world's leading central banks will boost short-term dollar funding for European banks facing a dollar shortage buoyed the euro.

"The market seems to be a little bit more reassured that (their) support will not allow for major disruption in Europe," said Natalie Trunow, chief investment officer of equities at Calvert Investment Management in Bethesda, Maryland, which manages about $14.8 billion in assets.

A sharp decline in French and Italian banking stocks, along with the euro's slide, showed caution still lingers despite encouraging signs of growing efforts to resolve the debt crisis.

But even though central bank support for funding European banks eased fears that Greece's fiscal woes might bring down the financial system in Europe, no one suggested the crisis was fully resolved.

"There is still a lot of open-ended issues out there, which means this situation will remain pretty fluid," said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia.

"All of what we just gained in the last five trading sessions could be given back," Luschini said, referring to Wall Street, whose rally has surpassed by a day the rally in European stock markets.

The Dow Jones industrial average .DJI closed up 75.91 points, or 0.66 percent, at 11,509.09. The Standard & Poor's 500 Index .SPX gained 6.90 points, or 0.57 percent, at 1,216.01. The Nasdaq Composite Index .IXIC added 15.24 points, or 0.58 percent, at 2,622.31.

MSCI's all-country world equity index .MIWD00000PUS rose 0.7 percent, while the FTSE Eurofirst index .FTEU3 of top regional European shares closed up 0.6 percent at 937.85.

A rally in banks stocks lost steam, however, and the STOXX Europe 600 Banks index .SX7P finished up 0.3 percent after paring earlier strong gains.

BNP Paribas (BNPP.PA), France's largest listed bank, lost 7.6 percent, and UniCredit (CRDI.MI), Italy's biggest bank, shed 7 percent.

U.S. bank stocks also slid, with the KBW Bank index .BKX off 0.4 percent.

Next week's meeting of the Federal Reserve came into view, amid speculation policy makers might provide further stimulus to the economy.

"The news yesterday that central banks are offering dollar liquidity to European lenders is regarded as being the start of an accelerated process in addressing the debt crisis," said James Dailey, portfolio manager of TEAM Asset Strategy Fund in Harrisburg, Pennsylvania.

"With the Fed meeting next week, (the ECB news) sort of served as a threshold. Investors are now thinking that we have entered a process toward additional monetization."

Markets shrugged off a survey that showed even though U.S. consumer sentiment inched up in early September, Americans remained gloomy about the future, with a gauge of expectations falling to the lowest level since 1980.

U.S. Treasury securities edged higher.

The benchmark 10-year U.S. Treasury note was up 6/32 in price to yield 2.06 percent.

Brent crude fell, reversing earlier gains, as the euro weakened and the consumer outlook fell to a 31-year low, according to a preliminary survey of consumer sentiment by Thomson Reuters/University of Michigan.

Brent crude for November settled down 8 cents at $112.22 a barrel.

U.S. crude took a bigger fall, settling down $1.44 a barrel to $87.96.

"Oil investors have to be getting worried about global demand going forward, and the risk of contagion in Europe from Greece to other economies," said Richard Ilczyszyn of MF Global in Chicago.

Gold rallied as the gloomier U.S. consumer sentiment revived the bid for safe-haven assets.

U.S. gold futures for December delivery settled up $33.30 at $1,814.70 an ounce.

(Reporting by Gertrude Chavez-Dreyfuss, Emily Flitter, Joshua Schneyer and Chris Kelly in New York and Joanne Frearson, Ikuko Kurahone, Pratima Desai and Anirban Nag in London; Writing by Herbert Lash, Editing by Leslie Adler)

The leaders took steps this week to show they were tackling the debt crisis, which has plagued markets for weeks, including coordinated central bank moves to give European banks greater access to funding in dollars.

U.S. Treasury Secretary Timothy Geithner urged EU finance ministers to leverage their bailout fund to better tackle the debt crisis and to start speaking with one voice, but there was no agreement on what steps to take.

Still, the encouraging headlines out of Europe helped the S&P 500 post a 5.4 percent gain for the week, its best since early July, and the five-day string of gains was the broad index's strongest since the end of June.

The Nasdaq composite index registered its best weekly percentage advance since July 2009, reflecting strength in technology shares on Friday. The S&P tech index .GSPT rose 1 percent, while the S&P consumer discretionary index .GSPD also gained 1 percent.

"The market seems to be a little bit more reassured that (their) support will not allow for a major disruption in Europe," said Natalie Trunow, chief investment officer of equities at Calvert Investment Management in Bethesda, Maryland, which manages about $14.8 billion.

The Dow Jones industrial average .DJI ended up 75.91 points, or 0.66 percent, at 11,509.09. The Standard & Poor's 500 Index .SPX was up 6.90 points, or 0.57 percent, at 1,216.01. The Nasdaq Composite Index .IXIC was up 15.24 points, or 0.58 percent, at 2,622.31.

The Nasdaq gained 6.3 percent for the week while the Dow rose 4.7 percent.

Still, major obstacles must be overcome in solving the euro zone's debt crisis.

Less than 75 percent of private sector creditors have signaled they will take part in a scheme to buy back Greek debt, far less than the 90 percent target set by Greece. The shortfall could jeopardize the planned second bailout package for Athens.

Greece's international lenders said on Friday they would delay a crucial visit to the country next week, and European finance ministers demanded that Athens fulfill its pledges to win further aid.

After the market's close, Moody's Investors Service left Italy's Aa2 foreign sovereign currency credit rating unchanged but reiterated that it remained on review for a possible downgrade.

Among U.S. stocks, General Electric Co (GE.N) gained 1.6 percent to $16.33 after forming two new joint ventures in Russia that it said could generate $10 billion to $15 billion in new revenue over the next few years.

Another Dow component, United Technologies Corp (UTX.N), is lining up financing for a major acquisition in the United States, according to people with direct knowledge of the matter.

The U.S. industrial conglomerate is tapping the credit market for funds that could top $20 billion, said one of the sources. Its shares slipped 0.1 percent to $75.50.

One of the worst hit stocks, BlackBerry maker Research In Motion Ltd (RIM.TO)(RIMM.O) slid 19 percent to $23.93 a day after it reported a steep drop in quarterly profit and offered little hope of a turnaround soon.

U.S. economic data showed consumer sentiment inched up in early September, but Americans were gloomy about the future. A gauge of expectations fell to its lowest level since 1980.

Volume was a strong 8.8 billion shares on the New York Stock Exchange, Amex and Nasdaq, above last year's average of roughly 7.6 billion.

Advancers led decliners by 15 to 14 on the NYSE and by about 7 to 6 on Nasdaq.

(Reporting by Caroline Valetkevitch; Editing by Kenneth Barry)

Interest in AOL from private equity firms ramped up after the company's stock plummeted about 30 percent on dismal earnings results last month. Allen & Co and Bank of America Securities are advising AOL on strategic alternatives, including a possible sale, sources said.

Problem is, the private equity firms have now turned their attention to Yahoo, which is reportedly seeking its own sale after firing Chief Executive Carol Bartz on September 6 and attracting the ire of activist investor Daniel Loeb.

AOL declined to comment for this story.

Sources said the top-tier private equity firms that were looking at AOL are now setting their sights on the company famous for its purple logo and peppy exclamation point, viewing it as more valuable and housing more attractive assets than AOL.

"Yahoo has jumped to the forefront," said one industry source familiar with the situation.

Indeed, according to this industry source and one other source, several PE firms have lines out to at least two media companies to see if they are willing to partner on a bid for all or pieces of Yahoo. Both sources declined to name the PE firms or media companies.

AOL and Yahoo are two vastly different business in terms of market value -- roughly $1.6 billion and $19 billion respectively -- meaning that there are different pools of potential buyers for each asset. The big private equity firms with massive amounts of money under management are able to go after Yahoo on their own or with a strategic partner. The smaller private equity firms are better equipped to digest AOL and likely couldn't pursue Yahoo absent being part of a consortia of buyers.

Or, to put it another way, AOL's second-class assets are now only attracting the interest of second-tier buyers.

Indeed, only when compared to AOL does Yahoo come out the winner.

"They are both in rough shape, but AOL has more structural challenges than Yahoo," said Ross Sandler an analyst with RBC Capital Markets.

Compounding AOL's problems is the fact that its lucrative subscriber dial-up business is also one of greatest liabilities. Sandler said dial-up is partly responsible for a 25 percent year-on-year decline in AOL's free cash flow.

"At Yahoo you don't have those issues," he said.

To make up for the loss of subscription revenue, AOL is training its sights on advertising sales. But even that is having set backs. Its launch last September of a more expensive large ad-format with interactive panels that dominate a Web called Project Devil is still trying to gain traction on Madison Avenue.

Under Armstrong, AOL has also developed a penchant for investing in projects that have yet to pay out.

Case in point: Patch.com. AOL has shoveled roughly $160 million into the network of more than 800 neighborhood-oriented websites dedicated to local news, many of which are less than a year old. Yet Patch is on track to lose $140 million to $150 million this year, estimates Sandler.

Though expensive, at least AOL's attention-grabbing acquisition of the Huffington Post for $315 million is delivering returns since the business is profitable.

Yahoo's coming on the block couldn't have come at a worse time for Armstrong. The former Google Inc ad sales executive has seen his reputation dented since taking over AOL. According to one of the industry sources, Armstrong' reputation has taken as much of a hit as Bartz's, even before he bungled the dust-up that resulted in TechCrunch founder Michael Arrington's ouster.

(Reporting by Jennifer Saba; Editing by Peter Lauria and Richard Chang)