NEW YORK (Reuters) - US stock investors could be in for further declines this week, which would worsen the markets' dismal start to 2008, as banks are due to post quarterly results that some observers expect may contain more mortgage-related surprises.

With fears of a recession mounting, any news that suggests further deterioration in the US economic picture is likely to weigh heavily on stocks.

"If the numbers are not as bad as the market is expecting, we'll probably begin to see some relief," John Praveen, chief investment strategist for Prudential International Investments Advisers LLC in Newark, New Jersey, said, referring to possible write-downs related to sub-prime mortgages.

"If the numbers are worse than what the market is looking for, we'll probably see a big sell-off," he added.

Citigroup Inc and Merrill Lynch & Co Inc are among financial firms scheduled to report this week, while results are also expected from Wall Street bellwethers General Electric Co and International Business Machines Corp .

For the week, the Dow Jones industrial average fell about 1.5 percent, the Standard & Poor's 500 Index declined 0.7 percent and the Nasdaq Composite Index dropped 2.6 percent.

After three straight weeks of declines, the S&P is down 5.6 percent, its poorest three-week performance since early August. The Dow is down 6.28 percent, the worst such stretch in nearly five years, and the Nasdaq is down 9.4 percent, its worst such run in more than five years. An extensive US economic agenda also looms this week, with reports due on producer prices, consumer prices, retail sales, housing starts and business inventories.

After Federal Reserve Chairman Ben Bernanke's strong signal last Thursday that the Fed will be very accommodative on interest rates at its next January 29-30 meeting, the consumer price index report on Wednesday takes on even more significance.

A benign CPI number will increase the expectation that the Fed's rate cut will be 50 basis points, not just 25 basis points, Praveen said. Interest rate futures are already pricing in a half-percentage-point cut.

Both Citigroup, which reports tomorrow, and Merrill, which reports on Thursday, replaced top leadership last year as they became mired in losses related to subprime mortgages.

The New York Times on Friday reported Merrill is expected to suffer $15 billion in losses stemming from bad mortgage investments, almost twice the company's original estimate.

Citigroup is also expected to report a large fourth-quarter loss. Its shares were up on Friday on hopes it was close to securing new outside capital, but the stock has been hit hard by concerns about further write-downs. The largest US bank recorded about $6.8 billion of write-downs in the third quarter and said in November it may face another $11 billion worth.

"Even with a heavy calendar of data, earnings should be the thing that is more in play," said Brandon Thomas, chief investment officer with Portfolio Management Consultants, a unit of Envestnet Asset Management in Chicago.

In a Reuters poll of economists, producer prices are seen rising 0.2 percent in December after a 3.2 percent jump in November on a spike in energy prices, according to the median forecast.

A rise of 0.2 percent is expected for "core" producer prices, which exclude the volatile food and energy sectors. The producer prices data is due tomorrow.

Data from the Commerce Department, due tomorrow, is expected to show retail sales were unchanged in December. The November report showed a stronger-than-expected 1.2 percent increase, but store chains have since reported disappointing activity in the weeks leading up to Christmas.

Wednesday brings November consumer prices, with the median forecasts pointing to a rise of 0.2 percent in both the overall and the core rates.

Also on Wednesday, the Federal Reserve issues the Beige book, a summary of economic conditions in the 12 Federal Reserve districts. The data is prepared for the month-end Fed meeting on rates and will be studied by analysts for more clues about monetary policy.

A key indicator in the new week will be home construction started in December, due to be released on Thursday. The median forecast in the Reuters survey sees a slower 1.14 million unit annual pace, from 1.19 million in November. The report also includes data on building permits.

Other reports in the week ahead includes regional manufacturing data from Federal Reserve banks in New York and Philadelphia.

The IBM earnings are due on Thursday, and GE reports on Friday. Intel Corp, the world's largest chipmaker, reports tomorrow.