Stocks are expected to rise this week as Wall Streeters return from their Labor Day weekend to find stocks near five-month lows — and a few bits of encouraging economic data from late last week. 

``It seems to me that the market is reading every bit of information in the darkest possible shading. The pessimism is setting the stage for the market to respond well when there is news that is not as bad as the market fears,'' said Milton Ezrati, senior economist and strategist at Lord Abbett & Co., an investment management company which oversees about $40 billion. 

``We expect the market to start recovering next week. A weekly call is always problematic, but there will be more volume and the bias should be up.'' 

Economic data, all covering August, set for release include the monthly employment report on Friday, Tuesday's National Association of Purchasing Management's index, and motor vehicle sales announced on Tuesday. 

Bob Robbins, chief investment strategist at SunTrust Robinson Humphrey in Atlanta, said, ``The NAPM numbers are going to be pointing to a recovery in the economy and this is important because this is the first time that real economic activity is being shown to turn up out of six, seven or eight bad months. 

``I am forecasting a significantly better than expected number ... and watch the new orders number, I think it will be significantly better than expected,'' Robbins said of the NAPM figures due Tuesday. 

Last Friday, stocks ended a three-day rout that scalped leading indexes to lows unseen since early April, and pushed the Dow Jones industrial average below 10,000. 

Friday's gain was built on new data showing signs of life in the manufacturing sector: the U.S. government reported new orders for goods ticked up 0.1 percent in July, well above an expected drop of 0.5 percent. 

Also, the Chicagoland Business Barometer rose in August to a seasonally adjusted 43.5 from 38.0 in July, the National Association of Purchasing Management-Chicago said. 

At the same time, the University of Michigan's closely watched consumer sentiment index showed only a modest dip to 91.5 from 92.4 in June. 

With this positive data, the focus is now sharpened for Tuesday's NAPM reading for August. The market is now expecting a reading of 43.9 versus the prior month's 43.6. A number below 50 indicates business activity is contracting. 

Ned Reilly, chief investment strategist, State Street Global Advisors, Boston, agrees recent sharp losses and an end to the summer doldrums could lead to a positive week. 

``I'm hoping that we would start a rally after the Labor Day period because all of the players will be back. I think that they should be in the frame of mind that stocks are pretty cheap at the moment.'' 

A diverse collection of stocks skidded to 52-week lows last week, including Compaq Computer Corp., Walt Disney Co., Ford Motor Co., Sun Microsystems, Starbucks Corp. and Bank of New York Co. Inc.  

For the week, the Dow fell 4.5 percent, the Nasdaq tumbled 5.8 percent, and the S&P 500 declined 4.3 percent. Year-to-date, the Dow is off 7.8 percent, to Nasdaq is 26.9 percent lower and the S&P 500 has dropped 14.1 percent. 

EARNINGS WARNINGS 

Investors will likely have to digest more quarterly earnings warnings, the kind of news that depressed last week's market. Specifically, fresh pessimism from Sun Micro and fiber-optic leader Corning Inc. sent buyers running for the exits. 

``The level of expectation out there has been diminished to zero,'' Reilly said. ``I can't say the psychology could be any worse. People are going to start looking at the glass one-quarter full.'' 

Reilly said that given the current negative market psychology, earnings warnings will offer relief simply because the companies are clearing the decks by going public with the news. For many companies, investors have already marked down the prices of stocks due to downbeat earnings expectations. 

``I am hopeful that the pre-announcements will be forthcoming and at least end the guessing and anxiety that was reflected in stock prices in the last couple of weeks,'' Reilly said 

``It is pretty well known that the third quarter (earnings) is not going to show much improvement relative to the second, it will probably mark the absolute low, and the fourth quarter will show much more improved earnings,'' he said. 

Companies, Reilly said, have had a long enough period of time to reduce their variable costs, and manage once-bloated inventories downward, ``which was has been a very hard period for most of these companies.'' 

In addition to Tuesday's NAPM report, on Friday morning, the market will get a look last month's labor market. The average forecast is for a 33,000 drop in non-farm payrolls, versus the previous drop of 42,000, and 4.6 percent unemployment, compared to 4.5 percent in July. 

Reuters and the Associated Press contributed to this report.