THE Philippine stock market is expected to climb back above the 4,000 line this week with guarded optimism creeping back into the market on hopes of a favorable resolution to the European debt crisis.

After gaining 2.84 percent in the previous week, the Philippine Stock Exchange index is expected to follow this up with another week of gains as the build-up of momentum may invite more funds and bargain-hunting in anticipation of third quarter earnings.

“After having tipped 4,000-line in intraday trades Friday, the market is expected to keep investor interest moving into the last three months of the year,” said Jun Calaycay of Accord Capital Equities Corp.

Last week’s positive swing wiped out a third of the 830-point loss in the previous 38 sessions.

Investors are seen to gradually accumulate index counters following a successful test of the 3,700-line, proving the resiliency of the domestic equity market, Calaycay added.

Despite the optimism, sentiment remains guarded until the findings of the European Union, International Monetary Fund and European Central Bank’s visit to Greece are announced.

“Even if a fresh tranche of bailout funds are given to Greece, another growing concern is Italy. The country’s debt to GDP ratio comes second to Greece which is the highest in the Euro zone,” said Maria Arlysa Narciso of AB Capital Securities Inc.

“Short-term bounces might be an opportunity to exit for now until the picture clears for the overall macro framework in industrialized markets. Concerns over prospective weakness in demand for Asian exported goods will be highlighted on weekly progression of economic barometers overseas,” said Freya Natividad, investment analyst at 2TradeAsia.com.

Wall Street will provide a negative backdrop for the local market after the Dow Jones Industrial Average on Friday dropped 240.60 points or 2.16 percent to 10,913.38 on weak economic data from China triggered fears of a global economic slowdown.

“The PSEi would likely swing erratically between gains and losses until it finds a solid ground where it can consolidate. When finally there is enough reason to rally, the index can breach 4,000 and probably head towards 4,150,” said Narciso.

This week, the PSE will begin extending trading hours until 1 p.m. before it fully implements afternoon trading next year.

“As you know, the program is by next year the afternoon sessions actually all happen so this is a warm-up,” said Hans Sicat, PSE president and chief executive.