Investors are likely to be wrestling this week with two new factors that have arisen to complicate an already tricky economic environment: a sharp about-face in currency trading and signs of trouble in emerging markets.

They will also be bracing for the next wave of U.S. bank earnings reports, which begin in earnest next week, hoping that huge writedowns from the credit crisis are a thing of the past.

A major financial story of the past few weeks has been the strengthening of the dollar against major currencies.

The dollar index, a measure of the greenback against six other currencies, has risen in seven of the past eight weeks and is headed for its largest quarterly percentage gain since the fourth quarter of 1992.

The British pound has been particularly hurt by the shift, falling rapidly to around $1.76, a level last seen two and a half years ago. But the euro has also fallen and now trades at about $1.42, compared with $1.60 in mid-July.

For equity investors, these kinds of moves can have a significant impact on returns, especially in a climate of falling or weak stock markets.

"Equity investors typically don't hedge the currency risk," said Michael Metcalfe, head of global macro strategy at State Street Global Markets. He noted that at the end of 2007, U.S. investors held as much as $5.3 trillion of foreign equities. The strengthening dollar means that conversion back from euros, pounds and other currencies could be costly, prompting investors to try to repatriate profits in case the trend continues.

Conversely, Metcalfe notes that a stronger dollar may put off overseas investors, including big central banks, from buying U.S. assets. He noted that foreign custody holdings of U.S. Treasuries had begun to fall last month.

"That might be the first warning sign that dollar strength will lead to slow accumulation of dollar assets by central banks," he said.

On Friday, poor U.S. jobs data showed that the U.S. economy was still suffering.

A shift is also taking place in emerging markets, the once- booming asset class that is now threatened by the slowing developed economies. Emerging-market equities have been underperforming their developed counterparts for most of the year and are coming under more intense scrutiny as the global downturn spreads.

Emerging-market stocks as measured by the benchmark Morgan Stanley Capital International, or MSCI, index hit 17-month lows last week, while spreads between emerging-market debt yields and corresponding U.S. Treasury yields increased to levels last seen in June 2005, when the index was adjusted to reflect Argentina's historic debt default.