Use the account "NT AUTHORITY\SYSTEM" for local system account.
This account may be localized on localized operating systems. Please double-check it when it is used on localized operating system.
'NT Authority\NetworkService' is the second best option.
The best option is to create a specific domain account for SQL Server and SQL Server Agent, and provide those domain accounts JUST the minimum permissions required.
See these resources:
Configuration -Service Accounts, SQL Server 2005 - Setting Up Windows Service Accounts
http://msdn2.microsoft.com/en-us/library/ms143691.aspx
http://msdn2.microsoft.com/en-us/library/ms143504.aspx
Configuration -Service Accounts, SQL Server or SQL Server Agent service account
http://support.microsoft.com/kb/283811/en-us
http://msdn2.microsoft.com/en-us/library/ms143691.aspx
Configuration -Service Accounts,Selecting an Account for the SQL Server Agent Service
http://msdn2.microsoft.com/en-us/library/ms191543.aspx
http://support.microsoft.com/kb/907557