Stock index futures fell sharply on Wednesday, with markets rattled by Germany's decision to ban naked short selling of certain financial instruments and comments from its chancellor that the euro was in danger.

Germany banned naked short sales of euro-denominated government bonds, credit default swaps based on those bonds and shares in the country's 10 leading financial institutions in a move that appeared to surprise its partners in the European Union, who said they were not consulted.

German Chancellor Angela Merkel said in a speech to parliament the euro was in danger and urged speedy action to stop market extortion and said the EU needed a process for orderly insolvency of its members.

European shares fell sharply as Germany's move sparked concerns of tighter regulation, and the euro fell to a four-year low of $1.2145 before bouncing slightly above the $1.22 level.

Since the announcement of the rescue plan there seems to be a leakage of confidence as to how much it is going to cost, how it is going to get paid for. We are not hearing enough from European leaders to say we've got our arms wrapped around this, said Arthur Hogan, chief market analyst at Jefferies & Co in Boston.

Instead the first major announcement that you get from European leaders is to say we are going to ban short selling of debt and equity, which sounds like panic, and it sounds like something that is being done unilaterally without discussing it with other European nations.

In naked short selling, a trader sells a financial instrument, betting that its price will fall, without first borrowing the instrument or ensuring that it can be borrowed, as in a conventional short sale.

S&P 500 futures fell 7 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 56 points, and Nasdaq 100 futures shed 12.25 points.

After the closing bell on Tuesday, Hewlett-Packard Co reported results that beat expectations, and the company raised its full-year earnings outlook. Its stock rose 2.5 percent to $47.97 in premarket trade on Wednesday.

Deere & Co shares added 2.3 percent to $57.16 after the farm equipment maker posted a stronger-than-expected quarterly profit and raised its full-year outlook.

Target Corp shares were unchanged at $54.22 after the retailer posted a higher first-quarter profit, and food producer Hormel Foods Corp was unchanged at $41.78 after reporting better-than-expected second-quarter earnings.

Other companies reporting quarterly earnings on Wednesday include Limited Brands Inc , Autodesk , Applied Materials Inc .

Data due later Wednesday includes the U.S. consumer price index for April and the release of the Federal Reserve's policy-making committee minutes from its most recent meeting. A poll of economists by Reuters forecasts a month-over-month rise in April inflation, excluding food and energy costs, of 0.1 percent.

(Editing by Padraic Cassidy)