The annual meeting of central bankers and policy makers in Jackson Hole, Wyoming, at the end of the week will be closely monitored for any clues about plans for monetary stimulus in the world's largest economies.
Fed Chairman Ben Bernanke will not attend, as was announced in April. Fed Vice Chair Janet Yellen, one of the two top contenders to replace Bernanke when his term expires in January, will chair the panel discussions at the Kansas City Fed symposium.
Investors are beginning the week with firm expectations the Fed is set to begin downgrading its bond-buying program at the end of its next meeting on September 17 and 18 amid signs the American labour market is improving.
On Friday, the Dow Jones Industrial Average fell 0.2 per cent, while the Standard & Poor's 500 Index declined 0.3 per cent and the Nasdaq Composite Index slipped 0.1 per cent. For the week, the Dow dropped 2.2 per cent, the S&P 500 shed 2.1 per cent, while the Nasdaq fell 1.6 per cent.
US Treasuries also retreated, pushing yields on 10-year bonds 25 basis points higher in the past five days, according to Bloomberg News.
"The market has come to realise that there's no QE infinity," Dallas Fed President Richard Fisher told Fox Business Network on Friday. "The economy is improving. We're seeing better numbers in the economy. You would expect to see a steepening of the yield curve."
The US dollar has benefitted from those expectations, however, climbing 1.4 per cent against the yen last week.
"All the US data that's been coming out recently, it all leads back to Fed tapering expectations, and that's really what's driving the markets," Eric Viloria, senior currency strategist for Gain Capital Group in New York, told Bloomberg News.
The coming days will provide fresh clues on the US housing market, with the latest reports on existing home sales released on Wednesday, the FHFA house price index on Thursday and new home sales on Friday.
Other data will arrive in the form of the Chicago Fed national activity index on Tuesday, the PMI manufacturing index flash, weekly jobless claims, leading indicators and the Kansas City Fed manufacturing index on Thursday.
The minutes from the latest FOMC meeting will be released on Wednesday.
In Europe, the Stoxx 600 Index added 0.1 per cent last week, while Germany's DAX gained 0.6 per cent and France's CAC 40 advanced 1.2 per cent. The UK's FTSE 100 Index dropped 1.3 per cent.
European stocks have become more appealing, bolstered by data showing the euro-zone economy grew in the second quarter, expanding after six consecutive quarters of contraction. Flows into European equities from US-based funds climbed to a two-month high in the week that ended August 14, according to data from Thomson Reuters Lipper service.
Data on manufacturing and services PMI for the euro zone, France and Germany are due on Thursday, while euro-zone consumer confidence data are scheduled for release on Friday.
HSBC manufacturing PMI data for China are also due on August 22. Recent reports have bolstered the outlook for the world's second-largest economy, which has been slowing to what is hoped a more steady rate of growth.
Good news from China helps underpin commodities including gold.
Gold, reaching a two month high of US$1,376.87on Friday, may extend its recent recovery.
Prices may climb to as high as US$1,550 an ounce by the end of the year, Jeffrey Rhodes, managing director of the financial institutions division of the Kaloti Jewellery Group, a Dubai-based gold trader and refiner, told Bloomberg News.