Stocks were set to rebound on Tuesday, a day after the S&P 500 hit its lowest level in over two months, taking out important technical levels as investors grew more bearish on the economy, but analysts said a recent downtrend was likely to remain in place.

The S&P 500 has fallen 5.5 percent since a recent high at the start of May and closed at its lowest level since March 18, having fallen through its April low in the last session. Some investors look for further volatility and a possible move lower before equities stabilize.

We came a long way yesterday, said John Brady, senior vice president at MF Global in Chicago. I think that there is going to be a growing nervousness in the market.

Brady looked for S&P 500 support at 1,245, a level the roughly coincides with the index's low for March.

Helping to put a floor on commodity prices, the dollar fell to a one-month low against a basket of currencies <.DXY> after a Chinese official said the greenback would continue to weaken.

Also helping the rebound, European Central Bank chief Jean-Claude Trichet said a restructuring of Greece's public debt, which many in the market see as inevitable, is inappropriate as long as the government follows through on reforms.

S&P 500 futures rose 6.3 points and were above 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 rose 41 points, and Nasdaq 100 futures added 9.5 points.

The declines in the market have left the S&P 500 up just 2.3 percent for the year so far.

Peter Cardillo, chief market economist at Avalon Partners in New York, expects the S&P 500 to hold support at 1,275 but cautioned that a move below that could trigger more selling. Analysts at Brown Brothers Harriman in New York look for a decline to 1,230.

I think the market is trying to focus on whether or not this is a temporary decline in economic activity or is this going to mushroom into something worse, said Cardillo, referring to the recent batch of soft economic data.

European stocks edged higher, with the FTSEurofirst 300 index <.FTEU3> up 0.1 percent, rebounding from an 11-week closing low and after a four-session losing run. <.EU>

Brent crude edged up 0.2 percent, trading near $115 a barrel, while U.S. gold rose back to $1,550 an ounce and copper futures steadied, boosted by the soft dollar and safe haven investors.

Federal Reserve Chairman Ben Bernanke is due to speak on the U.S. economic outlook at a banking conference in Atlanta. Fed officials have said recent data was a disappointment, and one suggested it could delay the Fed's exit from its extremely easy monetary policy. Bernanke is set to start shortly before the market closes


The International Monetary Fund is open to delaying Greece's repayment of its international loans but believes a major restructuring of its debt would create serious problems in the euro zone, an IMF official said.

General Electric Co and Capital One Financial Corp have submitted bids for ING's U.S. online banking operations in a deal worth about $9 billion, Bloomberg reported. GE's shares added 0.8 percent to $18.60 in premarket trade.

International Paper Co launched a $3.3 billion unsolicited offer for rival Temple-Inland Inc as it dug in for what could be a prolonged battle to dominate North America's corrugated packaging business. Temple-Inland shot up 43 percent to $30.05, while IP rose 3.9 percent to $30.81 in premarket trade.

(Editing by Jeffrey Benkoe)