Wall Street tilted toward a lower open on Tuesday after a government report showed inflation at the wholesale level rose more than forecast after stripping out food and fuel prices.
The Labor Department reported that wholesale inflation edged up by 0.2 percent in April following a 1.1 percent jump in March. Outside of food and energy, prices rose by a faster 0.4 percent _ double what analysts had expected.
Rising prices for gasoline and utilities prices are affecting both companies and consumers, and the government report shows price pressures are seeping into other areas. If those costs are passed on to the consumer, it could cause a pullback in spending that accounts for more than two-thirds of the U.S. economy.
Investors will also get a better idea about consumer spending with a number of earnings reports from some of the nation's biggest retailers. Home Depot Inc. reported that first-quarter profit fell 66 percent because of the continued housing slump. Staples Inc. said profit rose 1.5 percent during the quarter, and reaffirmed its outlook.
In addition, chain-store sales fell 0.4 percent during the week of May 17, down from 1 percent the previous week, according to the International Council of Shopping Centers and UBS Securities.
Dow Jones industrial average futures down 91, or 0.58 percent, to 12,954. Standard & Poor's 500 index futures shed 9.50, or 0.66 percent, to 1,420.30, and the Nasdaq 100 futures dropped 13.00, or 0.64 percent, to 2,012.75.
Bond prices rose. The yield on the benchmark 10-year Treasury note, which moves opposite its yield, fell to 3.80 percent from 3.83 percent late Monday.
The dollar was mixed against other major currencies.
Oil prices extended its gains after closing overnight above $127 for the first time on news that OPEC will not increase its output before its next meeting in September. A barrel of light sweet crude rose 60 cents to $127.65 in premarket trading on the New York Mercantile Exchange.
Federal Reserve Vice Chairman Donald Kohn said during a speech in Atlanta he was cautiously upbeat that the economy will recover, and that the central bank "appears to be appropriate calibrated" to manage inflation over the medium term. He said the Fed is watching inflation "closely" for signs that higher energy and food prices are spreading into other areas of the economy.
Meanwhile, the Federal Reserve Bank of Chicago issued a report that showed U.S. economic activity weakened further in April and reached its lowest level since the 2001 recession.
Banking stocks are set to open lower after Oppenheimer & Co. analyst Meredith Whitney said she expects the credit crisis to extend into 2009, and "perhaps beyond." She said firms like JPMorgan Chase & Co. and Citigroup Inc. have set aside $25 billion to cover losses, but might have to set aside about $170 billion by the end of next year.
Mortgage finance firm Fannie Mae will be in focus after Senate banking committee leaders late Monday announced they are close to a housing bill deal that would help prevent foreclosures. They also plan to change the way the government oversees both Fannie Mae and Freddie Mac.
Overseas, Japan's central bank kept interest rates steady Tuesday amid lingering worries about a global slowdown. Tokyo's Nikkei closed down 0.77 percent.
In Europe, London's FTSE dropped 1.49 percent, Frankfurt's DAX fell 0.99 percent and Paris' CAC 40 shed 1.17 percent.
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