5 big themes likely to dominate thinking of investors and traders coming weeks

1/ ONE MORE HEAVE
A crisis which some argue is based on years of government profligacy, unwise lending and "see-no-evil" governance was never going to be resolved at a single summit. Whatever action the European Union leaders agree -- and serious doubts over what could be achieved were exposed in the run-up to the meeting -- the repercussions will dominate markets in the coming week and probably for many to come. Ultimately, markets will need to assess how quickly any agreement, whether on Greek debt, the EFSF bailout fund or recapitalising banks, can be implemented. If there is a concrete plan with a clear timetable, equities could rally strongly, while anything deemed can kicking could trigger a big sell-off and see Bund yields test their lows. How far markets will be prepared to give policymakers the benefit of the doubt even if not all the plan's elements are agreed will determine the extent of any fall in riskier assets. Flash euro zone PMIs on Monday and a first look at U.S. third-quarter GDP on Thursday, along with a swathe of Q3 corporate earnings, will be a gauge of how far markets' other bug-bear this year -- slowing growth -- may add to the gloom in the rest of 2011.

2/ CLOSE TO THE EDGE
Any package to contain the euro zone crisis entails massive implementation risk, especially as regards recapitalisation of the region's banks and a breakthrough on how to beef up the firepower of the single currency bloc's EFSF rescue fund. Success or failure in addressing underlying structural issues will be shown by the scale and depth (measured by a return of sizeable volumes and real money buying) of any fall in peripheral government bond yields and credit default swaps. Italian yields, especially, need to retreat back below 5 percent -- as they did after the ECB started buying its bonds in August -- from current highs of 6 percent to show investors see major progress has been made. Safe-haven German Bund futures have swung in a wide 133 to 139 range in volatile trade over the past month and could retest either of those levels in the wake of the summit.

3/ POISED FOR A FALL
A lot of bearish bets against the euro have been cleaned out in the past week, leaving it poised for a move lower on any post-EU summit disappointment. In the options market, euro/dollar one-month risk-reversals have a stronger bias for the downside, suggesting the latest rally is on a shaky foundation. Since August, hedge funds have been strong buyers of the dollar against the euro and sterling and, according to SG Global Asset Allocation, latest data suggests they expect the greenback to make further gains. And while the euro is likely to be sold against the dollar and the yen, speculation that the SNB will lift the floor on the euro/Swiss franc pair could see the euro drift higher against the Swissie with more investors closing their bullish franc positions. Failure at the EU summit will lead to a loss of risk appetite and help the safe-haven yen. So far, speculation that the Japanese authorities may take fresh measures to counter the yen's strength is keeping the dollar/yen stuck in a range. Short-term implied volatilities in the pair are drifting lower, and some traders say there is value there, if the authorities were to intervene and drive the yen lower in the near term.

4/ ANOTHER HIT
Given that it will take time for confidence to return to money markets to spur interbank lending, commercial banks' demand for the ECB's reintroduced 12-month loans at Wednesday's tender will be closely watched. The system is already flush with cash as banks have built up liquidity buffers in the face of extra write-downs of Greek debt holdings. A higher-than-forecast take-up of the 12-month funds (consensus in a Reuters poll puts demand at 60 billion euros) would be a definite thumbs-down to policymakers' efforts to shore up the banking sector and a sign that banks still fear they will still struggle to find term funding despite the latest efforts to restore market confidence. Interbank rates have marched ever higher despite the promise of more liquidity: any breakthrough plan for the banks could see lower-than-expected uptake at the tender and a retreat in interbank rates could be the harbinger of a recovery in interbank lending.

5/ DON'T BANK ON IT
Quarterly earnings from European banks, such as Deutsche Bank, Banco Santander, BBVA, UBS, Banco Espirito Santo and Banco de Sabadell, could add further gloom to equities. U.S. banks' earnings this season have been generally weak. With European banks already faced with further write-downs of their exposure to highly indebted euro zone sovereigns and the need for recapitalisation, their earnings are likely to be on the weak side. Meanwhile, corporate results from the likes of Caterpillar, Bayer, BASF, Daimler, ExxonMobil, Chevron, BP, Dow Chemical, DuPont, Boeing, Procter & Gamble, Visa, Daimler, Fiat, Volkswagen and ABB will give further clues to the state of the global economy, along with the U.S. Q3 GDP. Earnings outlooks from these companies, which are highly correlated with economic growth, will be closely scrutinised by investors battered by a 10 percent fall in world stocks this year and hoping they can end 2011 in better shape.