By Ellis Mnyandu

NEW YORK, May 1 (Reuters) - U.S. stocks keep proving the
naysayers wrong, as major averages continue to gain despite
expectations for the recent rally's demise. And next week may
be no different.

But after a frenzied two-month run, the roadblocks may be
too much to overcome.

Fears that bank stress tests will cast an even bigger
shadow over the addled financial sector coupled with
uncertainty about the April employment figures might just bring
the rally to an end.

It will undoubtedly be a busy week with Federal Reserve
Chairman Ben Bernanke heading to Capitol Hill to testify on the
economy on Tuesday, the all-important April non-farm payrolls
data set for release on Friday and authorities worldwide
mobilizing against a deadly new flu strain.

Earnings reports should also command attention on Wall
Street with Walt Disney (DIS.N: Quote, Profile, Research), a market bellwether, among the
companies due to post quarterly scorecards.

But analysts said the stock market's direction would mainly
hinge on what emerges from the U.S. bank stress test results.

"The focus is on the much ballyhooed and delayed release of
the details of the stress tests," said David Dietze, president
and chief investment strategist at PointView Financial Services
in Summit, New Jersey.

"What investors are bracing for is to have a great big
problem unloaded on them on those banks without a clear path to
resolve it," he said, adding "that raises questions as to the
sustainability of the rally."

STRESS TESTS EYED

The stress tests are a government exercise to help
regulators gauge what any additional capital would be needed in
the event of a range of economic scenarios.

According to a government source, the results measuring the
health of the largest 19 U.S. banks are expected to be made
public on Thursday. For details, see [ID:nN01312288]

"There are a lot of risks to the market over the next few
weeks that might lead to some sell-off in financial stocks and
in the market as a whole," said John Praveen, chief investment
strategist at Prudential International Investments Advisers LLC
in Newark, New Jersey.

"A lot of information has been leaked out already, that
everybody is going to pass the tests, but some of the big banks
-- especially Citi and Bank of America -- are going to be asked
to raise additional capital. Will there be further dilution of
the existing shareholders?," he added.

Ever since major U.S. banks, including Citigroup (C.N: Quote, Profile, Research) and
Bank of America (BAC.N: Quote, Profile, Research), signaled in early March that they had
had a strong start to 2009, investors have found little reason
to shun stocks.

The benchmark S&P 500 .SPX has risen 30 percent since
touching a 12-year low on March 9, while the KBW Bank index
has risen 64 percent since that
psychologically-significant low.

For the latest week, the Dow Jones industrial average
jumped 1.7 percent and the S&P 500 gained 1.3 percent. The
Nasdaq climbed 1.5 percent -- capping its eighth straight
weekly advance, its longest weekly winning streak since
December 1999.

Another recent boost for stocks has been a spate of
surprisingly less-dire reports on the economy, suggesting that
the recession that began in December 2007 may be abating.

RALLY OVER?

But for a market now coming up against some significant
resistance at levels last seen in January, a search for
catalysts to sustain the recent rally may make next week a
critical juncture.

Some analysts say a sideways movement would be healthy so
the market can consolidate the recent gains. And those steeped
in the history of Wall Street are mindful of the old saw: "Sell
in May and go away."

"We've had a monster rally, there's been a lot of short
covering," said John Schloegel, vice president of investment
strategies at Capital Cities Asset Management in Austin,
Texas.

"If you're a prudent investor who's been able to
participate in such a gigantic rally it would make sense to
pare back especially if you have a heavy weighting in
equities," he said.

Overall, some skepticism about the likelihood of a further
run-up has begun to emerge.

According to Citigroup's Chief U.S. equity strategist
Tobias Levkovich, stock mutual funds garnered six straight
weeks of inflows starting the week of March 18, totaling $15.9
billion, with about 85 percent of that amount designated for
U.S. funds.

However, bond funds raked in $39.14 billion during the same
period, underscoring a clear tone of skepticism among
individual investors.

"I would think we're topping. The market looks very
top-heavy," said Carl Birkelbach, chairman and chief executive
of Birkelbach Investment Securities in Chicago. "I think a
correction would even be healthy at this point."

Friday's payrolls report is expected to show the economy
shed more than 600,000 jobs in April and the unemployment rate
jumped to 8.9 percent from March's 8.5 percent.

Other key data will be Tuesday's reading on the vast
service sector from the Institute for Supply Management, the
government's productivity and costs report for the first
quarter on Thursday, and the ADP National Employment report on
Wednesday.

Bernanke will appear before the U.S. Congress' Joint
Economic Committee on Tuesday at 10 a.m. EDT (1400 GMT), while
on Thursday he is scheduled to speak on banking supervision.
For the full Fed diary, click [ID:nN2434770]

On the earnings front through May 1, about 326 of S&P 500
companies have already reported first-quarter results, with 66
percent beating estimates, 9 percent matching and 25 percent
missing.

Besides Disney, other likely earnings highlights in the
upcoming week include Sprint (S.N: Quote, Profile, Research), Tyson Foods (TSN.N: Quote, Profile, Research), Kraft
Foods (KFT.N: Quote, Profile, Research), Cisco Systems (CSCO.O: Quote, Profile, Research), Pulte Homes (PHM.N: Quote, Profile, Research),
D.R. Horton (DHI.N: Quote, Profile, Research) and Allstate Corp (ALL.N: Quote, Profile, Research). For the full
earnings diary, see [RESF/US]

Major U.S. retailers are also scheduled post monthly sales
on Thursday.
(Wall St Week Ahead runs weekly. Questions or comments on this
column can be e-mailed to:
ellis.mnyandu(at)thomsonreuters.com)