Stocks face a dicey stretch in the coming week as investors brace for Friday's employment report, which will set the tone for the upcoming first-quarter earnings season.

"The potential exists for the market to sell off in advance of the employment data , because we've been tricked now a couple times," said Paul Nolte, director of investments at Hinsdale Associates. He was referring to February's report, when analysts expected to see a 125,000 increase in nonfarm payrolls, but just 21,000 materialized. A similar disappointment occurred in January's report.

Nolte thinks investors could be overconfident this time, too. "It's a 'shame on me, shame on you, it's not going to happen again'-type feeling," he said.

Jim Melcher, president and market strategist at Balestra Capital, also put an emphasis on the employment report. "It's become the data point du jour," he said. "Every market has its own set of statistics that everybody focuses on, almost at the exclusion of everything else."

While labor angst rises, investors' fear of terrorism finally seems to be waning, Nolte said. "That news has a shelf life of a week to two weeks," he said, though fresh incidents would obviously lash the market anew. Conversely, any news of the military getting closer to capturing al Qaeda leader Osama bin Laden would be a positive for stocks.

On the strength of Thursday's rally, the Dow closed the just-completed week up 0.2%, while the Nasdaq slid 1% and the S&P 500 decreased 0.2%.

The government's March employment report will be released before the start of trading Friday. The report has lately been a disappointment, showing the economy is not adding jobs at a rate fast enough to satisfy analysts that an economic recovery is sustainable.

Consensus is that 100,000 nonfarm jobs will be added, with the unemployment rate unchanged at 5.6%. Economists have said they would like to see at least 150,000 jobs added for three months in a row to show that the economy is indeed on the mend.

"Anything shy of 100,000 jobs with any downward revision to last month will put a damper on the market," said Nolte. "Anything north of 150,000 will allow the market to continue to rally off Thursday."

Last Thursday's final reading of a 4.1% increase in fourth-quarter gross domestic product helped give the market confidence in the economy's ability to create jobs. But both Melcher and Nolte stressed that GDP levels could have a difficult time maintaining a strong growth rate if more jobs aren't added quickly.

"You can have GDP looking good for quite a while, but without jobs it's going to fade, and you're going to go into a sideways or downward economy," said Melcher. He expects the employment report to show that just 50,000 jobs to 70,000 jobs were added in March.

Nolte would like to see quarterly GDP growth continue in excess of 4%. "Nobody is really confident that the economy is growing fast enough," he said.

Meanwhile, David Rosenberg, chief North American economist at Merrill Lynch, is concerned that growth in average hourly earnings, also a part of the employment report, has declined to 1.7% from over 3% a year ago. He said it is the slowest pace since late 1986.

"It's where we're creating the jobs -- not in high-paying/high-skilled areas in financial services and IT, but in areas like retail," he said in a Friday research report. Rosenberg noted that Wal-Mart alone created 99,000 jobs last year.

For the March report, analysts have forecast average hourly earnings to be up 0.2%, compared with 0.2% in February.

The other key economic data for the week will be Thursday's report on manufacturing from the Institute for Supply Management. Consensus is for a reading of 59.8 in March, which would be a decline from February's reading of 61.4.

Investors will get a taste of jobs-related data first on Thursday when initial jobless claims for the week ended March 27 are released. Nolte expects to see claims come in plus or minus 10,000 from the prior week's 339,000.

Also next week, consumer confidence for March will be out on Tuesday, with analysts expecting a reading of 86 from the prior month's reading of 87.3. On Wednesday, the factory orders report for February will be out; economists expect a rise of 1.4%, compared with a 0.5% drop in January.

The Chicago purchasing managers index will be released on Wednesday, with analysts expecting a reading of 61, compared with the prior month's 63.6. And on Thursday, construction spending for February is expected to show a decline of 0.1%, compared with a 0.3% drop in January.

On the corporate side, Rosenberg thinks first-quarter earnings -- which should start trickling in two weeks from now -- will be strong. "For the first time ever, analysts have raised their views for a given quarter for three consecutive quarters," he said, adding that overall guidance from companies had been more positive than negative.

Melcher noted that the relatively small amount of first-quarter earnings preannouncements so far is a good sign. "Earnings have been coming through well, the question is if they can continue," he said.

On Wednesday, look for earnings releases from Monsanto ( MON) and competitors Best Buy ( BBY) and Circuit City ( CC). On Thursday, Pier 1 Imports ( PIR) will report.