NEW YORK (Reuters) - Investors will try to tack another leg on to the year-long US stock rally, looking to this week's economic data and statement from the central bank for evidence the recovery is still on track.

After tumbling during the fourth-quarter earnings season, the S&P 500 has climbed back to its mid-January levels, racking up a 17-month closing high last week. However, the index's hold on the key 1,150 is tentative and it closed just below it Friday, setting up a potential tug of war between the bulls and the bears.

"If we get a big spike on the way up and it doesn't hold on the way down, it'll be negative for the market," said Joseph Benanti, managing director of sales and trade at Rosenblatt Securities in New York.

"I'd like to see some consolidation at these levels to where people start to feel comfortable that the numbers are right, the earnings are in line with expectations and we can continue to build over the rest of the year."

Benanti said a push above 1,150 could lift the S&P 500 to 1,175 or 1,200.

The main event of the week will be the Federal Reserve's assessment of the economy at the end of its interest rate-setting meeting tomorrow. The Fed is expected to hold benchmark rates near zero and reiterate its pledge to keep them low for an "extended period."

Investors will be alert for a change in language that could signal when the Fed will begin to tighten its monetary policy, particularly after it raised the discount rate last month.

Key economic reports on tap include regional manufacturing for March, leading economic indicators for February, housing starts for February, the Producer Price Index and the Consumer Price Index, both for February, and weekly initial jobless claims.

Market watchers will also have their eyes on Washington, where Senate Banking Committee Chairman Christopher Dodd is expected to unveil his bill on an overhaul of financial regulation. Bipartisan Senate talks over reform collapsed last week and any further signs of gridlock could buoy stocks.

Financial stocks could have momentum in their favour after being among the sector's leaders last week, giving a sense of deja vu as the market celebrated its rebound from the 12-and-a-half-year closing low last March 9.

Last week's rally was sparked by optimistic comments from Citigroup and Bank of America. This week, the shares of companies such as Citigroup and American International Group were lifted by a similar shift in sentiment as investors bet the battered companies were on the road to recovery.

Short covering, as well as the potential setback for financial regulation, also bolstered the banking group. The S&P financial index was up for the fourth week in a row, gaining 2.1 percent.

For the week, the Dow Jones industrial average rose 0.6 percent, while the Standard & Poor's 500 Index climbed 1 percent and the Nasdaq Composite Index shot up 1.8 percent.

The S&P 500 is up 70 percent from its 12-and-a-half-year closing low set on March 9, 2009.

For 2010 so far, the Dow is up 1.9 percent, while the S&P 500 is up 3.1 percent and the Nasdaq is up 4.3 percent.

But investors said the road to recovery is still a long one, and leadership could begin to shift out of the sector again. And while political limbo can boost stocks in the short term, long-term uncertainty can become a negative.

"This broad-based increase, especially in the more speculative areas, might have problems continuing, though obviously in the short term, the momentum is there," said Alan Lancz, president of Alan B. Lancz & Associates Inc in Toledo, Ohio.

Benanti said investors could begin to shift into technology instead after the sector lagged at the start of the year. Tech shares are expected to benefit from a recovering economy as consumers and businesses spend more.

Wall Street could see more volatility than it has of late with four types of March futures and options contracts set to expire or settle at the end of the week, an event known as "quadruple witching". The quarterly event tends to attract high volume as investors adjust or exercise their derivative positions.

"Usually expiration weeks are positive but with the market up at new highs, it's hard to tell which way this one will pan out," said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont.