Futures rise as oil drops, housing data on tap

By Kristina Cooke

NEW YORK (Reuters) - Stock index futures edged higher on Tuesday after Monday's steep drop as the price of oil fell below $114.

Oil fell $2 as the U.S. dollar strengthened, countering concern that Hurricane Gustav could threaten oil installations in the Gulf of Mexico. The decline in the price of oil will likely give a boost to companies particularly sensitive to fuel costs, such as retailers and airlines.

World stocks hit their lowest level in almost two years, as a worsening German business mood and fresh concerns about financial firms triggered a sell-off in risky assets.

Investors will get more clues on how long the U.S. housing slump could last, with three separate reports on housing on tap.

"You have some positive things going on: The dollar strengthening is putting pressure on crude oil and that's helping some underlying support to the market after yesterday's sharp sell-off," said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont. But he noted that volume was thin and volatility has been high in recent sessions.

S&P 500 futures rose 3.10 points and were above 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 rose 33 points and Nasdaq 100 futures gained 4 points.

On housing, the S&P Case-Shiller Home Price Index will be released at 9 a.m. EDT and July new home sales and the OFHEO home price index are due at 10 a.m. EDT.

Apart from the housing data, economic reports include consumer confidence for August and the minutes of the Federal Reserve's last policy-setting meeting.

"Clearly the new home sales important for the economic outlook. Consumer confidence could also be key. If we can see some better-than-expected numbers here maybe we can build on the gains spurred by the weaker oil price," Mendelsohn said.

In corporate news, close-out retailer Big Lots Inc reported a stronger-than-expected quarterly profit, as shoppers headed to its stores for low prices on furniture, food and paper products, and raised its earnings forecast for the current financial year.

General Motors' shares rose 2 percent in Europe. Two Gulf Arab investors have expressed interest in buying GM's Hummer brand, the company's Middle East chief told Reuters.

Hewlett-Packard Co expects to close its $13.25 billion acquisition of Electronic Data Systems Corp. Tuesday, the Wall Street Journal reported. Hewlett Packard shares were up 0.8 percent in European trading.

Financials are likely to be in focus again on Tuesday. JPMorgan Chase & Co said late on Monday that the market value of its investments in Fannie Mae and Freddie Mac preferred stock has dropped by half to $600 million this quarter. In a filing with regulators, the bank said the decline could affect its earnings.

U.S. stocks fell sharply on Monday as credit concerns hounded financial stocks while global economic growth worries hurt big technology and industrial companies.

The three major indexes fell about 2 percent each, wiping out gains booked on Friday, though traders said thin, end-of-summer conditions may have exaggerated the moves.

(Editing by Kenneth Barry)

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