By Jeremy Gaunt, European Investment Correspondent
LONDON, May 22 (Reuters) - Investors head into the new week increasingly anxious for firm evidence of real economic revival yet hanging on to most of the gains they have made in the equity market rally that began in March.
The strength of the rally has petered off somewhat but there is little sign to date of a correction.
Indeed, the tenacity of the rally has taken many investors by surprise, as has the sudden weakness of the dollar and a bounce in commodities -- all likely to be the themes for the week ahead.
Sovereign ratings, too, will be in the spotlight after Britain had its outlook cut by Standard & Poor's.
MSCI's all-country world stock index hit a 6-month high this week, although many major market indexes have been trading within a range and have failed to reach new highs recently. Emerging market stocks have been a major part of this rally, regaining more than a third of what they lost from peak to trough in the credit crisis crash. But many investors are now saying they want to see concrete signs that the global economy is actually on the mend and not just declining less aggressively than before.
"The financial markets are signalling that the worst of the financial crisis shortly after the collapse of Lehman's late last year has passed," Lim Say Boon, chief investment strategist for Standard Chartered Bank, told reporters in Dubai.
"It's valid to talk about green shoots but it's probably too early. We prefer to talk of the ice melting."
With this in mind, investors may pay even more keen attention than usual next week to housing data from the United States, which comes in the form of existing and new home sales and building permits for April.
A return to health in the U.S. housing market -- and with it growing economic confidence among consumers -- is seen as one of the key elements of future economic recovery.
Analysts polled by Reuters reckon the U.S. housing is edging towards a bottom this year, but with most saying this has not yet come.
U.S. housing starts and permits fell to record lows in April. Housing starts actually fell to an annual rate that was the lowest since January 1959.
BULL RUN
Although there are plenty of investors who question the sustainability of the stock market rally in the face of doubts about the economic future, a number are beginning to suggest that more is to come.
Max King, strategist at Investec Asset Management, said this week that investors had been wrong-footed by equity gains which he said had now clearly signalled the start of a new bull market.
"Investors have been left on the sidelines with too much cash and dismissing the gains as a 'dead cat bounce' or a bear market rally," he said in a note.
The same can probably be said for currency investors, many of whom seem to have been taken by surprise by the fall in the dollar.
The dollar index, tracking the greenback against a basket of major currencies, was heading for its third worst week in 14 years on Friday and on a monthly basis has only had three steeper declines in the past 26 years.
Investors have begun selling the dollar in part because the equity market bounce has increased risk appetite and they are unwinding their safe haven plays.
The high-yielding New Zealand dollar, for example, was heading towards a 6 percent weekly gain against the U.S. currency on Friday.
If this continues next week it will spill over into other assets. It has already been reflected, for example, in commodities, some of which have been rising sharply, which in and of itself boosts the outlook for major emerging market economies such as Brazil and Russia.
Oil is now trading above $60 a barrel at six-month highs while copperhas risen nearly 50 percent since the start of the year.
WOE BRITANNIA
S&P's cutting of its ratings outlook for Britain stunned UK markets during the week, but was not out of the ballpark given the state of the country's public finances.
Although sterling and gilts recovered some ground -- and competitor rating agencies Moody's and Fitch said they had no plans to follow S&P -- the move had wide repercussions.
It was a shot across the bows of not only the UK government but also other countries that are racking up their debts, deficits and borrowing.
Those countries engaging in quantitative easing, essentially issuing debt to provide liquidity, are likely to be under scrutiny.
Investors will be asking whether the United States' triple-A rating is in doubt or that of Germany, whose deficit/GDP ratio is still rising.
(Additional reporting by Raissa Kasolowsky in Dubai and Jamie McGeever in London; Editing by Ruth Pitchford) (To read Reuters Global Investing Blog click on http://blogs.reuters.com/globalinvesting; for the MacroScope Blog click on http://blogs.reuters.com/macroscope; for Hedge Hub click on http://blogs.reuters.com/hedgehub)