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E is no sign that investors’ headaches from Europe are going away, but early indications of strong holiday spending and an improving labour market could soothe Wall Street this week.

Fears that Europe’s debt crisis could spiral out of control have pushed stocks off two-year highs hit earlier this month. Since 5 November, the S&P has fallen 3.1 per cent after running up 17 per cent over the two months before that. At Friday’s close, the S&P 500 was down 0.9 per cent for the week, almost matching the Dow’s one per cent drop.

However, those fears have been countered by signs of a gathering recovery in the labour market at home. The government’s non-farm payrolls report on Friday is set to be another sign of a turnaround in hiring that could boost stocks through the end of the year.

Anecdotal evidence suggests holiday shopping got off to a good start. The S&P retail index rose more than five per cent in the run up to “Black Friday”, the day after Thanksgiving, when Americans traditionally take shopping malls by storm.

Retail stocks’ gains are a sign of an increasingly bullish view of the US consumer after a string of stronger indicators on jobs, sentiment and spending.

“The consumer is more confident and they are spending a bit more money, and I think retail as a whole is perking up,” said Gary Bradshaw, portfolio manager at Hodges Capital Management in Dallas, adding that retail stocks “look relatively cheap to us, and I think sales are going to surprise to the upside”.

Friday’s payrolls report is expected to show the economy added 140,000 jobs in November, according to economists. If that forecast is met, the jobs data will fit a pattern of growing strength in the labour market. Government payrolls data showed that in October companies hired at their fastest pace since April.

Black Friday marks the start of the holiday spending when U.S. retailers traditionally turn a profit, or go into the black for the year.80