TORONTO (Reuters) - With unemployment at an 11-year high, oil prices half what they were a year ago and consumer confidence fragile, corporate Canada is set for a steep drop in profits this reporting season.

But at a time when weak commodity prices and the global recession weigh heavily, analysts said a good deal of the bad news may already have been discounted in the market, so the downside for stock prices should be limited.

"(Profits) are going to be down year over, but it's a matter of are they going to be better than expectations?" asked Ian Nakamoto, director of research at MacDougall, MacDougall and MacTier.

"Expectations are still fairly low, so I think Canadian companies will meet to slightly beat expectations. The bar has been set pretty low."

Companies in Canada's blue chip S&P/TSX 60 index index are expected to report earnings that are 31.5 percent below the year-earlier quarter, according to Thomson Reuters data.

And operating earnings for the broader S&P/TSX composite index are seen down 35 percent, similar to the consensus forecast for the decline in S&P 500 earnings, according to Ben Joyce, a portfolio strategist at BMO Capital Markets.

Among heavyweight companies reporting results over the next week are Suncor Energy , Potash Corp., Teck Resources and Loblaw Cos.

Investors got a preview of how bad the situation could be last week when Nexen Inc said second-quarter profit tumbled a worse-than-expected 95 percent as oil prices fell and maintenance at two major projects curtailed production. Its stock sank.

The contrast with the second quarter of 2008 will be stark for many companies because the 2008 results were fueled by the record commodity prices. That helped push the TSX composite index to a record high of 15,154.77 on June 6, 2008 before the financial crisis exploded. It closed at 10,369.42 on Friday.

"In terms of comparing this year versus last year, certainly we are going to see the numbers themselves look pretty awful," said Kate Warne, Canadian market strategist at Edward Jones in St. Louis, Missouri.

But Ms Warne, like Mr. Nakamoto, said results will likely come in ahead of expectations. "The bar has been set very low, so it's pretty easy to crawl over a low bar," she said.