Futures drop on oil, bank jitters; PPI eyed : US Business

By Ellis Mnyandu

NEW YORK (Reuters) - Stock index futures fell on Tuesday as investors fretted about the impact of record crude oil prices on inflation and consumer spending and after an influential analyst warned the credit crisis is far from over.

Oil above $127 a barrel is seen as straining consumers' pocketbooks just as home owners grapples with slumping home values. The result is a dark cloud over the outlook for profits.

Investors were cautious before the release of the Labor Department's Producer Price Index for April, due at 8:30 a.m. EDT.

While U.S. stocks have seen some stability since their early March lows, with the S&P 500's 14-day relative strength index approaching 70, investors have also been growing anxious in recent days about the impact of higher energy costs.

They are also worried rising oil prices may make it harder for the Federal Reserve to boost the sputtering economy by cutting rates further due to inflation concerns.

"Oil is really starting to be seen as almost a tax on the consumer that is offsetting monetary policy," said Rick Meckler, president of investment firm LibertyView Capital Management in Jersey City, New Jersey. "It's making investors nervous about its impact on the economy."

S&P 500 futures fell 6.5 points, and were below fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract.

Dow Jones industrial average futures dropped 50 points, and Nasdaq 100 futures shed 8.75 points.

Meredith Whitney, a U.S. banking analyst at Oppenheimer &Co, said the credit crisis will likely extend well into next year and beyond, resulting in three years of multibillion dollar revenue declines.

She slashed her second-quarter profit estimates on credit card issuers American Express Co , a Dow component, and Capital One Financial .

She also slashed her profit views for JPMorgan Chase & Co , Citigroup Inc , Bank of America Corp and Wachovia Corp

Home Depot Inc reported a 66 percent drop in quarterly profit a day after rival Lowe's Companies Inc slashed its full-year profit outlook, indicating the housing market remains depressed. Shares of Home Depot, a Dow component, fell 1.3 percent before the bell to $28.50.

U.S. stocks ended mixed on Monday. The S&P 500 index and Dow Jones industrials eked out gains as record oil prices boosted energy shares, but the Nasdaq slipped after a chipmaker's warning about consumer spending hurt technology shares.

(Editing by Kenneth Barry)

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