Wall Street is searching for direction in the face of data suggesting an acceleration of US economic growth, a situation likely to mean higher interest rates than anticipated, analysts said.
The market closed out a mixed week on Friday, with the blue-chip Dow Jones Industrial Average losing 0.36 percent over the five days to 11,021.59.
The broad-market Standard & Poor's 500 index dipped 0.17 percent for the week to 1,287.23 but the tech-heavy NASDAQ composite index rose 0.68 percent to 2,302.60.
The market has been struggling, alternating rallies with losing sessions, as investors positioned in the face of apparently strong economic data including surveys showing healthy factory activity and services.
Analysts say the data cut both ways -- keeping growth on track but also encouraging the Federal Reserve to lift interest rates to a point where it could crimp profits and choke off economic activity.
Deutsche Bank economists said they see a "5 and 5" scenario for the economy -- economic growth at a 5 percent pace that leads to a 5 percent federal funds rate, up from the current level of 4.5 percent.
"The data this week still suggest to us that GDP will grow 5.0 percent in the first quarter and that the Fed will reach 5.0 percent on fed funds in May," they wrote.
"Despite the good news on core inflation, the overall strength of the economy in the near term is likely to be impressive enough that the Fed will want to take out additional insurance against an overshooting of sustainable levels of resource utilization," they said.
Lehman Brothers economist Ethan Harris sees an even more robust economic picture and that this is likely to be confirmed with Friday's report on February US job growth, which he pegs at 250,000 or greater.
"Thus we are bumping up our growth and Fed call. We now expect the funds rate to peak at 5.5 percent at either the August or September FOMC [Federal Open Market Committee] meeting," Harris said in a note to clients.
"The economy is showing more underlying strength than we had expected," he said.
The bond market gyrated in response to the stronger outlook.
The yield on the 10-year US Treasury bond jumped to 4.684 percent from 4.567 percent a week earlier and that on the 30-year bond rose to 4.660 percent from 4.515 percent. Bond yields and prices move in opposite directions.
Other analysts say the economic data may be giving false signals, with warm weather in January boosting activity, and worry that the Fed under new chairman Ben Bernanke may be too aggressive in attacking inflation.
"Our concern we have about the economy is that the Federal Reserve may overdo tightening," Wachovia Securities strategist Rod Smyth said.
Smyth said Bernanke "is likely to err on the side of tightening in order to establish his inflation-fighting credentials with financial markets."
The analyst added that because of the lag time of the impact of rate hikes of a year or more, "the chances have increased for a policy mistake by the Fed ... We believe consumers will succumb to a slowdown in the housing market and thus additional tightening in the next few months may ultimately lead to a sharper economic retrenchment."
Merrill Lynch chief investment officer Bob Doll said that he sees a slowdown later this year to bring overall growth to around 3.0 percent.
"Likewise, we expect earnings growth to continue to slow," Doll said, but he too is concerned about the Fed reaction.