Oil's downward trend helped boost consumer spending slightly in the past month, with crude hitting a three-month low below $114 a barrel on Friday. But its path remains volatile, prompting some investors to remain cautious.

The dollar's recent jump suggests to some that the health of the US economy could improve. It began weakening before other economies, and now that investors are seeing poor economic data from Europe and Asia, some think the US is closer to a recovery than other countries.

"For the past two years, crude has followed the dollar almost lockstep," said Marc Pado, US market strategist at Cantor Fitzgerald & Co in San Francisco. "The strength we've seen in the dollar is almost certainly helping bring crude down. At this point, as you move backward, it actually acts as a stimulus on the economy."

Although petrol prices have fallen since July, consumer spending – which accounts for two-thirds of the US economy – continues to falter.

Next week investors will get further data after quarterly earnings from retail giant Target Corp, home improvement retailers Home Depot and Lowe's Companies, and Hewlett-Packard.

This comes after JC Penney, Wal-Mart, Nordstrom and Macy's Inc posted earnings that exceeded analysts' estimates, but issued cautious forecasts for the second half of the year amid concerns about slow consumer spending.

New data on the Producer Price Index, housing starts and manufacturing will also be released this week. But the price of oil and the value of the dollar are more likely to sway investors because the data is based on July's oil and commodity prices, which were markedly higher.

Investors are also still wary of the rally in financial stocks in the past week, as analysts emphasise that the fallout from the credit crisis is far from over.

Thin trading volume indicates that there is still widespread concern about the US economy's health, especially following a $1.5bn write-off from JPMorgan Chase & Co.

"I don't think we're out of the woods yet on financials because I don't think we're out of the woods on housing," said Paul Nolte, director of investments at Hinsdale Associates.

Tomorrow the National Association of Home Builders will release its August Housing Market Index. On Tuesday, the government releases July housing starts.

Analysts expect the government data to show July housing starts slipped to a seasonally adjusted annual rate of 960,000 units, just below June's seasonally adjusted annual pace of 1.066 million units.



Data from the Federal Reserve Bank of Philadelphia on Thursday could be an important indicator of consumer spending in the year's second half, Pado said. He expects it to show an upturn in new orders.



But the focus this week will be on oil and the dollar. Oil prices fell below $114 a barrel on Friday, down from $115.20 a week ago on growing concerns about demand in industrial nations and the stronger dollar. Crude has fallen sharply since reaching an all-time high of $147.27 a barrel on July 11 as global economic problems and high fuel prices have cut demand in the US and Europe.



But investors are keeping a wary eye on the fighting between Russia and Georgia. Russian armed forces have occupied parts of Georgia since repelling a Georgian attack last week on the tiny pro-Russian separatist territory of South Ossetia.

"Any geopolitical developments, whether it be the Iranian situation or further developments with Russia and Georgia, those will influence oil markets," said Keith Hembre, chief economist at First American Funds.