Wall Street was headed for a third day of losses on Tuesday as the euro zone crisis rattled investors, although their fears seemed to dissipate through the morning as stock index futures came off their lows.

Reflecting a market driven by sentiment, futures cut losses sharply but were still lower as European officials for the first time refused to rule out default by Greece and investors feared the crisis could overtake Spain and Italy.

However, some optimism remained that authorities would find a solution and prevent the situation from getting out of control.

There is little to no chance that the euro zone central bank will do anything but build a significant, long-term solution, said Peter Kenny, managing director at Knight Capital in Jersey City, New Jersey. That's the hope.

Traders cited rumors that the European Central Bank was buying peripheral bonds for the first time in three months, with Portugal the suspected target of the purchases.

A selloff in Asia was swiftly followed in Europe. The FTSEurofirst 300 <.FTEU3> index of top European fell 0.7 percent, while Japan's Nikkei average <.N225> lost 1.4 percent. Wall Street posted its worst day in a month on Monday.

Early trading suggested economically sensitive areas, such as industrials and banking, would be weak. Citigroup fell 0.5 percent to $39.58 while General Electric fell 0.6 percent to $18.53.

S&P 500 futures slipped 3.4 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 dipped 17 points after falling more than 100 points earlier. Nasdaq 100 futures fell 3 points.

The S&P 500 found support at its 50 and 100-day moving averages at around the 1,316 level in the last session. Tuesday's move in futures threatened to take the index below that. In June the index rallied off its 200-day moving average, which now stands at around 1,270.

Euro zone finance ministers on Monday promised cheaper loans, longer maturities and a more flexible rescue fund to help Greece and other EU debtors in a bid to stop financial contagion engulfing Italy and Spain, but there are fears the rescue effort is unraveling. They will continue their meeting on Tuesday.

The euro stumbled to an all-time low against the Swiss franc on Tuesday as euro zone government bond yields vaulted higher, prompting investors to dump the single currency for safer ones.

As many as six Spanish banks have failed the European stress tests, including five savings banks and one medium-sized bank, ABC newspaper reported on Tuesday, citing unnamed sources.

There was little for investors to cheer closer to home. President Barack Obama and congressional leaders, struggling to break an impasse over taxes and spending cuts, will regroup on Tuesday to seek common ground for a deal to avoid a looming U.S. debt default.

Alcoa Inc shares were up 1 percent after the bell on Monday as America's biggest aluminum producer posted a big jump in second-quarter profit. However, in early trading the stock look set to get caught up in the wider, commodity-linked selloff, falling 0.8 percent to $15.78.

The U.S. corporate earnings season is widely expected to be good and could provide some counterbalance to the troubles engulfing the euro zone.

(Reporting by Edward Krudy; Editing by Kenneth Barry)