The U.S. Stock markets closed down Friday, with the Dow off 1.38% to 12,207.17, the NASDAQ down 1.47% and the S&P 500 down 1.59%, after a week of wild gyrations in response to first a global selloff on Monday, a 75-basis-point Fed rate cut on Tuesday and the announcement of a economic stimulus plan by House leaders and the Bush Administration on Thursday.

After all that, the Dow wound up only 108 points above where it was last Friday, before all the tumult. It resumed its rise on Monday, after opening down, on expectations that the Federal Reserse will have to cut rates further because the new-home sales data released by the Commerce Department Monday morning was so bad.

Builder stocks, which benefited first from investors betting against the sector covering their short positions in the wake of the Fed rate cut, then from a smattering of stock upgrades and finally from the mortgage-related provisions of the economic stimulus plan, have been on a steady rise. The S&P home builder ETF (AMEX:XHB) ended last week up more than 17% despite losing 1.64% on Friday, and began the new week up again on Monday--by 3.5%--in midafternoon trading.

The rise last week came as Ryland reported a $201-million loss for the fourth quarter of 2007 and Lennar disclosed an astounding loss of $1.3 billion. Both companies, however, pointed out that they are now far leaner in terms of land positions, backlog and debt than they had been and are now better positioned to survive the housing downturn.

Whether there was a bottom somewhere in there remains under debate.

Stephen East, home building analyst with Pali Research, upgraded Lennar(NYSE:LEN) to a 'Neutral' rating from 'Sell.' He also put out a research note Wednesday in which he said, "While today's move likely still has short covering embedded in it, we also believe there is a broader bent to it."He added, "If The Fed provides a few more opportunities in the way of rate cuts, expect the broader move to be sustained despite continued dreary fundamentals."

The analysts at Raymond James & Associates upgraded Centex (NYSE:CTX), Lennar, Pulte (NYSE:PHM), Standard Pacific (NYSE:SPF), and WCI (NYSE:WCI) to 'Market Perform,' and it upgraded Toll Brothers (NYSE:TOL) and Ryland Group (NYSE:RYL) to 'Outperform.' In its note announcing the upgrades, the analyst team of Paul D. Puryear and Buck Horne said, "The Fed's surprising action earlier this week has injected a new wildcard that we believe must be considered. By immediately cutting 75 basis points between meetings, coupled with the high likelihood of additional cuts beyond that soon, we believe the Fed has very clearly communicated in no uncertain terms just how serious a risk the current housing and credit market crisis poses to the general economy." They added, "We must acknowledge that certain homebuilding shares are already priced such that any glimmer of hope that potential bankruptcy is less likely during the next two years could provoke a significant trading rally."

Even CNBC's Jim Cramer turned positive, telling his viewers on Thursday evening that it was okay to buy and hold Toll Brothers.

All eyes during the coming week will again turn to the Fed, which the markets expect to cut its benchmark rates another 50 basis points during its two-day policy meeting on Tuesday and Wednesday. Attention will also focus on the Senate, where the House/Administration stimulus package will face pressure from individual Senators to add spending for their special-interest constituents.

The primary focus of the stimulus package--$600 and $1,200 tax rebates for singles with annual incomes under $75,000 and couples with incomes under $150,000, plus $300 per child--will do nothing for the housing business. A package of business incentives, however, could help via accelerated depreciation and tax allowances.

Most importantly for the housing business is that the bipartisan proposal contains a temporary provision to raise the conforming loan limits for Fannie Mae and Freddie Mac to 125% of the median home price in a given metro area up to a maximum of $729,750. It would expire at the end of 2008. It also provides for a permanent increase in the limit for FHA-backed loans from the current $367,000 to $729,750.

That proposal was immediately hailed by the National Association of Realtors and the National Association of Homebuilders, but at least one Wall Street analyst on Friday was questioning how helpful it could be.

Michael Rehaut at J.P. Morgan Securities put out a note to investors that called the proposal "a relative positive for the housing market" that "should help move some inventory." But, he added, "We believe the overall impact will be limited over at least the next two quarters. Specifically, we point to the GSEs' current capital constraints, the deleveraging of major money centers limiting demand for guaranteed product, while geographically, we note that this change mostly affects California, but should have a more minimal effect in Vegas, Phoenix, and Florida."

He concluded, "We expect home prices to continue their meaningful decline, which should drive further material levels of impairment charges."