Tired stock markets could find the impetus for another leg up this week if the American job market can manage a third, straight month of job gains in excess of 200,000.

“That’s not an overstatement at all,” said Andrew Pyle, investment adviser with Scotia McLeod in Peterborough, Ont., adding that a continuing improvement in the number of people applying for jobless insurance suggests the economy can pull off another 200,000-plus number.

Rising employment in the U.S. spells good news for Canada as a stronger American economy will create more demand for Canadian exports such as oil, metals and manufactured goods.

The U.S. non-farm payrolls report comes out on Friday and “the employment numbers should be good but the claims numbers point to a further decline in the unemployment rate,” Pyle said.

“Even if we had a surprise on the headline payrolls number, odds are the unemployment rate will continue to drift lower.”

The Toronto market ended last week down 0.6%. But the TSX is up about than 13% from the most recent lows of last October and 5.75% year to date, reflecting stronger economic data from the U.S. and China and confidence that the European debt crisis is being managed.

However, the strong gains have sowed doubt as to whether markets are set for a step back.

“We could see a drop of between four and nine per cent realistically,” said Phillip Petursson, director of institutional equities at Manulife Asset Management.

“We could be entering a consolidation or a bit of a contraction or correction phase, but nothing beyond what would be seen as normal market activity.”

New York markets also slipped after closing past the 13,000-mark last Tuesday for the first time since May 2008, but had trouble maintaining that perch for the rest of the week.

Pyle thinks the American job numbers could provide further lift.

“If you could get the Dow to build a base at 13,000, then this rally starts to develop real legs at least for the first half of this year,” he said.

“And if that were to happen, if you could get the Dow well above 13,000, that’s going to suck in a lot more retail money.”

Economists’ consensus for 210,000 job gains in the U.S. supports Pyle’s hope for growing momentum in job growth.

But economists are not nearly as optimistic about the Canadian job picture.

Statistics Canada also hands in its employment numbers for February on Friday and economists generally expect the economy to have created 17,500 jobs during the month with the jobless rate steady at 7.6%. That would follow a slight gain of 2,300 in January.

Bank of Montreal economists are more pessimistic, looking for job creation of 14,000.

“We don’t anticipate a further rise in the jobless rate, but we also don’t look for a break from the recent lacklustre pace of job growth either,” said BMO Capital Markets deputy chief economist Doug Porter.

He also observed that Canadian employment has been mediocre over the past six months, averaging just above 3,000 since last August.

The other major economic item on the agenda this week is the Bank of Canada’s next announcement on interest rates.

The central bank is widely expected to leave its key rate at one per cent, reflecting slowing economic conditions and a probable recession in Europe.

Traders will look to the accompanying statement for the bank’s latest take on economic conditions and Pyle added that the bank “may soften the previously dire talk on Europe, while ramping up other concerns such as oil prices.”

Oil prices finished last week at almost US$107 a barrel, up sharply from the US$98 level of the beginning of February, largely because of concerns over Iran’s nuclear program and worries about supply disruptions. Investors worry that a continued run-up could damage the fragile economic recovery.

Pyle also thinks the central bank will again remind markets of the dangers of Canadians continuing to pile on huge amounts of debt.

“Ottawa is really trying to pound the table here that debt numbers in Canada are out of line,” he said.

“Which tells me that the Bank of Canada is obviously not going to do anything with rates near term, and is going to have to be prepared to relax, perhaps, if these debt numbers in Canada produce a housing market correction at some point that needs addressing by the Bank of Canada in terms of strengthening the economy. That’s a bullet still in the chamber.”

Investors will also look to earnings coming in from the big banks following well received earnings report last week from Bank of Montreal (TSX:BMO), Royal Bank (TSX:RY) and TD Bank (TSX:TD).

Bank of Nova Scotia (TSX:BNS) and CIBC (TSX:CM) will hand in earnings this week.