Wall St Week Ahead - Stocks to struggle despite rescue plan

By Steven C. Johnson

NEW YORK (Reuters) - Wall Street's mood will likely remain dark next week as fallout from the credit crisis continues to corrode the U.S. economy and questions linger about the likely effectiveness of the newly passed bailout plan in shoring up the financial system.

On Friday, Wall Street ended its worst week in seven years with another tumble on fears that the $700 billion financial rescue package may not unblock credit markets and stave off a U.S. recession.

The plan will take bad mortgage debt off banks' hands so they can step up lending to households and businesses.

Aside from the bailout, the start of the corporate earnings season will vie for investor attention. Alcoa Inc will kick off the third-quarter company reports on Tuesday.

But corporate results aside, grim economic data -- topped by a government report showing the economy slashed 159,000 jobs in September in the biggest monthly decline in five and a half years -- confirms that the serious trouble on Wall Street has spread to Main Street.

What's more, lending should remain extremely tight. About the best investors can hope for, analysts said, is a very slow thaw in frozen credit markets, and even that's not a sure bet.

The cost for banks to borrow dollars over a three-month horizon shot up for a fifth straight day on Friday, signaling a widespread lack of confidence.

"The reality is that it's going to take months for credit markets to thaw out, and the stock market will remain very nervous because of the rapid deterioration in the economy," said Fred Dickson, director of retail research at D.A. Davidson & Co in Lake Oswego, Oregon.