U.S. stock index futures dropped on Tuesday after an unexpected fall in German business confidence rattled markets, as investors braced for reports on housing and consumer sentiment in the United States.

The focus on the economy overshadowed better-than-expected quarterly results from Home Depot Inc , as the top home improvement forecast a fiscal-year profit above estimates, sending its shares up more than 1 percent to $30.70 in premarket trade.

German business sentiment declined for the first time in almost a year in February, suggesting that Europe's largest economy may slide back into contraction in the first quarter. That heightened questions about the euro zone, already hit with fears over the high level of government debt in Greece.

News from the euro zone made investors more cautious ahead of the S&P/Case-Shiller house price index due out later Tuesday.

Housing is still the key, and there has been a lot of talk in the last couple of weeks about how this wave of foreclosures is going to come and send house prices lower again, said John Canally, investment strategist and economist for LPL Financial in Boston.

S&P 500 futures fell 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 were off 42 points, and Nasdaq 100 futures lost 8.25 points.

Home Depot swung to a fourth-quarter profit versus a loss a year ago. Excluding items, the latest-quarter profit was 24 cents a share, beating the average estimate of 17 cents.

In a busy day for retailers, Sears Holdings Corp said quarterly profit more than doubled despite weaker revenue, while Macy's Inc swung to a quarterly income.

Meanwhile, No. 2 U.S. discount retailer Target Corp reported higher quarterly profit.

Sears shares rose 4.5 percent to $100 premarket, while Macy's was little changed.

Consumer confidence data, due at 10 a.m. EST (1500 GMT) is expected to show U.S. consumers are a little less upbeat, while the S&P/Case-Shiller house price index of 20 major U.S. cities is expected to have fallen 3.2 percent in December, according to a Reuters poll, better than the 5.3 percent fall in January. Case-Shiller is due at 9 a.m. EST (1400 GMT)

(Reporting by Edward Krudy; editing by Jeffrey Benkoe)