The U.S. stock market suffered its third loss in four weeks as investors struggled to gauge
how Japan’s earthquake, tsunami, and unfolding nuclear emergency might affect the global economic recovery.

Buyers stepped in late last week, reflecting the consensus view that Japan’s disaster and higher oil prices have brought about a mere correction, but not yet the start of a bear market. But the buying was tentative, and the bounce shallow, with many still waiting for clearer signs that the selling pressure has exhausted itself.

At midweek, stocks fell briefly into the red for this year, and were off 6.4% from their Feb. 18 peak. More than half the components of the Standard & Poor’s 500 were plumbing fresh 20-day lows, a sign that the pullback came hard and fast. But credit markets remained relatively stable, both here and in Japan, which supports the argument that traders were simply paring risks after stocks’ 28% rally since August.

Barclays Capital’s economists, for example, say the global recovery should withstand the shocks so far. “The most significant risk comes from an energy-supply shock, where the nuclear uncertainty in Japan could compound the tensions in the Middle East,” they write. They’ve cut projections for Japan’s growth, but “do not foresee a major dislocation to global activity from the calamity.”

Given the prevalence of views like this, any news that Japan’s nuclear fallout is contained could unleash more buying. “This is a consensus intention, and not yet a consensus position,” notes Jan Loeys, JPMorgan’s global head of asset allocation. “The uniformity of positive views seems dangerous, but we see it more as confidence than complacency.”

Beyond that, however, restoring confidence and extending the bull run will require at least two things, says Jonathan Golub, UBS’ chief U.S. equity strategist. Investors will want to see evidence that these recent setbacks haven’t caused corporations and consumers to pull back more permanently. When companies report first-quarter earnings, bulls also will want to see companies passing on higher raw-material costs without too much damage to profit margins.

Markets got a boost Friday from financial stocks, which rallied after the Federal Reserve pronounced some banks healthy enough to be allowed to raise their dividends. JPMorgan (ticker: JPM) promptly upped its quarterly dividend to 25 cents, from 5 cents, while Wells Fargo (WFC) hiked its payout to 12 cents, from 5 cents. Caving to public pressure, the mature tech giant Cisco Systems (CSCO) says it will begin paying a six-cent quarterly dividend.

The Dow Jones Industrial Average ended last week down 186 points, or 1.5%, to 11,859. The S&P 500 Index absorbed its worst week in four months. The Nasdaq Composite Index fell 72, or 2.7%, to 2644, while the Russell 2000 gave up 8, or 1%, to 795.

QUANTIFYING JAPAN’S IMPACT on multinationals is impossible when Tokyo is still fighting to contain the radiation fallout from its nuclear plants. While the tsunami hit less than 5% of the population, power rationing in the aftermath could affect more than 40% and prove the bigger drag, along with the yen’s spike as foreign wealth is repatriated.

Shortages of parts from Japan have already prompted General Motors to shutter a Louisiana plant. Global companies have tended to downplay the disruptions to their supply chains as temporary. But “in a world of typically lean inventories, this could prove optimistic,” says Credit Suisse analyst Richard Kersley. “Moreover, other providers of components, should they source elsewhere, may raise prices.”

Take Mitsubishi Gas and Chemical’s suspended resin production at a plant damaged in the earthquake. A three-month delay in the production of resins and laminates could put at risk up to 50% of the output of chips used in smartphones.

Many tech analysts, have warned clients about potential disruptions, but have yet to change their profit estimates. Apple (AAPL) fell 6% last week, on concerns that the already tight pipeline of its coveted iPads and iPhones might be pinched. Nearly a third of the Boeing 787 is made in Japan, and Boeing (BA) slid 4% (Source: Barrons Online).