Wall Street was set to fall on Tuesday, led by banks and resource-related stocks, as risk aversion tied to Europe's debt crisis sent Italy's bond yields back into a perceived danger zone.
Prime Minister-designate Mario Monti was meeting with leaders of Italy's biggest two parties to discuss the many sacrifices needed to reverse a collapse in market confidence as the yield on Italy's 10-year benchmark bonds leaped above 7 percent.
European stocks dropped 0.7 percent, adding to the previous session's drop, and following on weakness in Asian markets overnight. Japan's Nikkei 225 closed down 0.7 percent.
A silver lining came in the form of stronger-than-expected retail sales in October and a report showing the New York manufacturing sector rose in November, ending five straight months of contraction. Index futures trimmed losses after the data, but the reports were not enough to undo the morning's futures losses entirely.
Doug Roberts, chief investment strategist at Channel Capital Research.com in Shrewsbury, New Jersey, said while the data was OK but are not resounding, investors would stay focused on Europe.
It is what I call the elephant in the room, he said. What people are thinking about more than anything is what could trigger a major recession and dislocation, and that's really Europe.
S&P 500 futures fell 8.9 points and were below fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration of the contract. Dow Jones industrial average futures slid 77 points, and Nasdaq 100 futures lost 13.25 points.
Shares of U.S. banks and natural resource-related shares, which are sensitive to flare-ups in Europe's debt crisis, looked set to be among the biggest losers.
In premarket trade, Citigroup Inc fell 1.4 percent to $27.97, while aluminum producer Alcoa Inc fell 0.9 percent to $10.29.
When Italian bond yields rose above 7 percent last week, the S&P 500 fell nearly 4 percent in one day. Heightened volatility has marked U.S. equities trading recently as investors fret about the debt crisis.
Bond prices in other European nations also rose sharply. In France and Austria, yields on their benchmark 10-year bonds both hit 3.6 percent.
The rise in the yields of countries that were until recently thought to be more isolated from the crisis has created new worries about a wider conflagration in European debt markets and could strain budgets when governments refinance large amounts of debt.
The danger is -- and the markets are keenly aware of this -- that this crisis, like most, turn on a dime and can blow up very, very quickly, said Oliver Pursche, president of Gary Goldberg Financial Services in Suffern, New York.
As long as the (European Central Bank) continues to be unwilling to become the lender of last resort and really pull out the bazooka you are going to continue to see these scares, said Pursche.
In the latest earnings reports, Wal-Mart Stores Inc's quarterly profit missed expectations as the economy continues to weigh on customers at its U.S. unit, its largest division. Its shares dropped 1.4 percent to $58.05.
Home Depot Inc raised its fiscal-year outlook for the third time in six months as efforts to improve distribution and boost customer service helped the No. 1 home improvement chain gain share from archrival Lowe's Cos Inc . Home Depot rose 1.2 percent to $38.70.
(Editing by Jeffrey Benkoe)