RPT-Wall St Week Ahead:Stocks face volume test after summer run

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(Repeating item that initially moved on Friday)

By Leah Schnurr

NEW YORK, Sept 6 (Reuters) - Wall Street's mettle will be tested this week as traders return from summer vacations to resurfacing signs of weakness after a six-month rally for stocks.

The specter of September may also make investors more inclined to sell. Markets closed the first week of the month with the worst weekly performance since early July, though the bulk of losses were recouped Friday as the monthly employment report was deemed to be less dire than expected.

Increased volume last week has investors keen to see what direction the market will take after the long Labor Day holiday weekend. U.S. markets will be closed on Monday.

Stronger downside volume is not an encouraging sign as it may signal investors are becoming more convincingly bearish.

"What you'd like to see is some evidence that players came back from the weekend and that they're starting to move assets to this market," said Jim Paulsen, chief investment officer at Wells Capital Management in Minneapolis.

"This whole advance has largely been that people quit selling."

On Friday, the Labor Department said declines in nonfarm payrolls for August were the smallest in a year. But it also said the U.S. unemployment rate rose to 9.7 percent, a 26-year high. While an improving labor market is key for an economic rebound, analysts expect unemployment to remain high even as the economy turns around.

The pick-up in market volume does not necessarily mean Wall Street's party is over, and a continued rally on strong participation will be further grist for the bulls' case.

So far, pullbacks have been viewed as buying opportunities by those eager to get a foothold into the market. With only second-tier economic data on tap this week and slim earnings releases until the new reporting season, stocks will be relying on those buying opportunities to move higher.

THE CRUELEST MONTH?

The S&P 500 .SPX ended August down 0.4 percent, snapping a six-month winning streak, and so far September has continued the downtrend.

For last week, the S&P lost 1.2 percent, the Dow fell 1.1 percent, while the Nasdaq was off 0.5 percent.

September has historically been one of the nastiest months of the year, a notoriety solidified last year by the collapse of Lehman Brothers, the takeover of Merrill Lynch and the bailout of American International Group (AIG.N).

Since 1900, the S&P 500 has posted positive one-month gains in September in slightly less than half of all instances, according to a research note from Tobias Levkovich, chief U.S. equity strategist at Citigroup. Continued...