NEW YORK (Reuters) - US stock markets ended one of the most volatile months in years on an impressive note last Friday, but this coming week still won't be any easier for investors as the employment report and housing turmoil remain high on radar screens.

Federal Reserve chairman Ben Bernanke acknowledged at the end of last week the problems in subprime lending and reiterated that the central bank will take the necessary steps to shelter the economy from turmoil in financial markets.

But he warned "it is not the responsibility of the Federal Reserve — nor would it be appropriate — to protect lenders and investors from the consequences of their financial decisions."

Investors, returning from the Labour Day holiday, and if lucky, a long summer vacation, will be watching closely for any further deterioration in the housing and consumer markets.

"September is turning out to be a critically important month for the markets," said Keith Wirtz, president and chief investment officer at Fifth Third Asset Management in Cincinnati.

"It could be an inflection point because that's when we'll get companies pre-announcing how they are performing in the third quarter and what they see for the remainder of the year."

The housing downturn has turned the spotlight on the tight US labour market.

This Friday, the US government releases the August employment report, which could reinforce a view that the Fed would slash the federal funds rate by quarter-percentage-point at its September 18 meeting.

A softening in the labour force is seen by many Fed watchers as a prerequisite to a cut in the fed funds rate from its current 5.25 percent, where it has been since June 2006.

Signs of softness have already emerged on that front: initial jobless claims in last Thursday's report rose for a fifth straight week, to the highest level since mid-April.

"You want to look at metrics associated with the consumer, so employment, income and retail are some of the biggest data points being scrutinized," Wirtz said.

Results from retailers recently have been sending mixed signals about consumer spending.

Upscale jeweller Tiffany & Co reported better-than-expected quarterly results and boosted its fiscal 2007 earnings outlook, citing a "reasonably favorable retail environment."

However, Sears Holdings, the nation's number two retailer after Wal-Mart, also said its second-quarter profit had tumbled 40 percent because of lower overall sales and weaker operating results from Kmart and its domestic Sears operations.

Since early August, central banks from around the world, including the Fed, have poured funds into money markets to tackle a liquidity crisis, stemming from the upheaval in the subprime mortgage market, which has made many banks freeze up on normal interbank lending.

"Bernanke must be pleased at the recovery that the financial markets have enjoyed since they cut the discount rate," said Tom Sowanick, chief investment officer at Clearbrook Financial LLC in Princeton, New Jersey.

Notwithstanding the volatility in August, the Dow Jones and S&P 500 are both up for the month 1.1 percent and 1.3 percent, respectively. The Nasdaq also gained in August, returning two percent.

In August, the S&P experienced its largest swings from high and low since October 2002.

"If the markets continue to perform with a positive tone into the next Fed meeting then the odds of a rate cut will be greatly diminished," Sowanick said.

Indeed, with the exception of last September, the Dow industrials have fallen by an average of 1.1 percent in each September since 1950, according to the Stock Trader's Almanac.

Meanwhile, the index has gained an average of 0.5 percent in October, the month when 10 bear markets — including the most recent in 2002 — have ended.

For now, US stocks are enjoying last week's rebound, bolstered last Friday amid optimism a White House-proposed mortgage assistance could ease liquidity conditions.

President George W. Bush set out measures to help homeowners with subprime mortgages refinance into new loans, but warned that the government's job was not to bail out speculators.

Bush's comments were in concert with remarks earlier by Bernanke that it was not the central bank's responsibility to protect lenders and investors who made mistakes.