U.S. stocks were set to open little changed at 2-1/2 year highs on Tuesday, with investors focused on corporate earnings and the impact of an interest rate hike by China on economic demand.
Investors said stocks could also be affected by the success of a $32 billion sale of U.S. three-year notes later on Tuesday. A jump in borrowing costs could hurt corporate earnings.
Following Monday's gains, which helped the benchmark breach a resistance level at 1,313, the S&P 500 faces resistance around 1,325 with near-term support at 1,300 and 1,295.
Merger activity continued Tuesday with Kindred Healthcare Inc's planned acquisition of RehabCare Group Inc to create a big post-acute healthcare services company.
China's central bank raised interest rates by 25 basis points, its second increase in six weeks in a bid to tame inflation. [ID:nTOE706030] In addition, consumer prices in Brazil surged at their fastest pace in nearly six years in January.
China was booming along and now they are acknowledging inflationary pressures, so we'll have to see if there's any kind of spillover here, said Stephen Carl, principal and head of U.S. equity trading at The Williams Capital Group in New York.
Deals buoyed the market yesterday, and today there's a couple of small mergers out there. We may see a flat to positive market as a follow-up.
With more than half of the S&P 500 companies' quarterly results in, 72 percent have beaten expectations.
S&P 500 futures edged down 0.5 point and were flat in terms of 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 added 3 points, and Nasdaq 100 futures rose 0.5 point.
McDonald's Corp rose 1.1 percent to $74.22 before the open after the Dow component said global sales at established restaurants rose more than expected in every region except the United States.
Teva Pharmaceutical Industries' shares fell 3.7 percent to $52.95 before the opening bell after the world's biggest maker of generic drugs reported results that fell short of forecasts.
Conexant Systems Inc , which received a buy-out offer from Standard Microsystems Corp last month, said it has received a rival bid from a private equity firm and that its board is considering the proposal. Its shares jumped 17.4 percent to $2.10 premarket.
Accelerating inflation in emerging markets could favor equities in the United States and other developed markets where recent economic data has improved.
Tokyo's stock market rose to a nine-month high, with market players indicating better-than-expected earnings from U.S. and Japanese companies have accelerated a shift of money out of high-inflation emerging markets and into developed markets with loose monetary policies and more subdued price pressures.
(Reporting by Rodrigo Campos; Editing by Kenneth Barry)