Stocks will be stuck in limbo this week, drifting modestly higher, but unable to gain momentum with the vigor of a U.S. economic rebound in question and corporate earnings growth still nowhere in sight.

Investors will be wondering if you can have too much of a good thing amid a barrage of economic data, as they weigh the benefits of an economic rebound against worries a quick recovery could spark higher interest rates. 

The holiday-shortened week will mark the heating up of the corporate confession season, when companies offer guidance on what their quarterly results will look like. While confession may be good for the soul, it usually makes traders nervous. 

"The economic news is better than expected, but the earnings are still lagging the news," said Nat Paull, portfolio manager at New Amsterdam Partners, adding that growing concerns that higher interest rates are on the horizon are also pressuring stocks. "That's all counterbalancing and leaving the market nowhere."

Investors have been anxious to put money to work in anticipation of a return to strong growth. But fresh signs of economic improvement could spark mixed feelings in the days ahead amid fears they will cause the U.S. Federal Reserve to put the brakes on by raising interest rates. 

Reports on the demand for U.S. durable goods, fourth-quarter growth, consumer sentiment and the housing sector will take the spotlight. 

Trading could be particularly thin and choppy since Wall Street is set for a four-day week with exchanges closed in observance of Good Friday. Many investors will be on vacation for the Passover and Easter holidays. 

Wall St. Fears Warnings

Only a handful of earnings are on tap, with results expected from investment banking giant Morgan Stanley, the No. 1 U.S. drugstore chain Walgreen Co., the No. 2 U.S. greeting card company American Greetings Corp. and the second-largest U.S. food company, ConAgra Foods Inc. 

Investors will be watching for what, if anything, Corporate America has to say about its upcoming reporting period. 

Corporate management is "looking at their sales guys and saying, 'Well, are we going to make it? Do we have to pre-announce?'" said Paul McManus, director of research at Independence Investment LLC. "Over the next two to three weeks, if we have minimal pre-announcements that are negative, that will mean that ... the recovery is on."

Out of 751 companies that have made announcements about their financial results so far, 48 percent have said their earnings will miss forecasts, 29 percent said they would beat them, and 22 percent said earnings would be on target, according to research firm Thomson Financial/First Call. 

Ailing corporate profits are not expected to return to health until the second quarter at the earliest, and that will keep the stock market's gains in check, experts said. 

"The direction that the Fed's headed, with the market trading at such a high multiple — at 23 times [earnings] — we really need earnings to come through to propel the market higher," said Owen Fitzpatrick, head of Deutsche Bank Private Banking's U.S. equity group. 

Analysts now expect earnings to show a drop of 8.6 percent in the first quarter, followed by a rise of 8.8 percent in the second quarter. They also predict earnings will gain 16.6 percent in all of 2002, Thomson Financial said. 

Stocks Pause 

Stocks ended the past week on a slightly downbeat note as investors' optimism about improvement in the economy was offset by concerns that stock prices may have outrun earnings expectations. 

For the week, the Dow Jones industrial average fell 1.7 percent, the Nasdaq Composite index slipped 0.9 percent and the Standard & Poor's 500 fell 1.5 percent. 

Worries that a sharper-than-expected snapback in U.S. growth could prompt the Federal Reserve to start raising interest rates again this spring or summer after slashing them to 40-year lows last year have made traders hesitant, analysts said. 

On Tuesday, the Fed left interest rates unchanged, but set the stage for future increases by dropping its long-held recession warning and saying the U.S. economy was growing at a "significant pace."

"The very things that will return corporate profits to faster growth rates are the things that will cause the Fed to raise interest rates to attempt to slow the economy. That's what we're worried about," Michael Vogelzang, president of Boston Advisors, Inc., said. 

That only leaves room for the S&P 500 to rise about 5 percent to 7 percent to between 1,206 and 1,219 by the end of the year, Vogelzang added. 

The Numbers Game

Wall Street will take a look at data on the housing sector, a pocket of economic strength, with reports on February sales of existing homes on Monday and new homes on Wednesday. Economists expect a drop in last month's sales of existing homes, while new home sales are likely to have risen in February, when compared with January results. 

One of the week's "most watched" set of numbers will be reported on Tuesday, with the release of February orders for costly durable goods, such as washing machines and computers. 

Earlier this month, data showed U.S. businesses were building up inventories, anticipating a pickup in demand from consumers and businesses amid the economic upturn. 

Now, investors are looking for evidence that that anticipated growth in demand is actually showing up in orders. 

Durable goods orders are expected to have risen 1 percent in February after an unexpectedly large gain of 2 percent in January, according to a Reuters poll. 

A final revision to fourth-quarter U.S. gross domestic product data is expected on Thursday. Economists expect GDP to show a gain of 1.4 percent — same as the previous revision. 

The consumer will move to center stage with two closely watched reports set for release. Consumer spending, which makes up about two-thirds of U.S. economic activity, has stayed strong through the downturn, and traders are watching for signs it has remained resilient. 

The Conference Board's index of consumer confidence, due on Tuesday, is expected to show a gain to 98.8 in March from 94.1 in February. On Thursday, the University of Michigan's final March consumer sentiment report will be released. The forecast calls for a March reading of 95.1, up from 90.7 in February. 

The New York and Chicago regional manufacturing surveys, due on on Thursday, will be scrutinized for clues on whether the U.S. manufacturing sector is emerging from its slump.