NEW YORK (Reuters) - Stock index futures sank on Tuesday as fear of a recession gripped investors, suggesting Wall Street will join a global equities plunge that could usher in a bear market.
Weaker-than-expected earnings from Bank of America and Wachovia Corp, the second- and fourth-largest U.S. banks, respectively, added to the grim mood on Wall Street. Shares of Bank of America fell 5.3 percent, and Wachovia slid 3.4 percent in trading before the opening bell.
The sell-off in futures follows sharp losses in global equities on worries a deteriorating U.S. economy would drag other regions down with it.
European stocks posted their biggest percentage drop since the September 11, 2001 attacks on Monday when U.S. financial markets were closed for the Martin Luther King Jr. Day holiday.
On Tuesday, European stocks fluctuated wildly, dropping more than 4 percent and then sharply cutting their losses on market talk of concerted central bank action to stem the fall. Japan's benchmark Nikkei lost 5.7 percent.
"We're in a meltdown and it seems the global financial markets have gone mad," said Peter Cardillo, chief market economist at Avalon Partners in New York.
Dow Jones industrial average futures dropped 516 points. Should the Dow close lower on Tuesday by the amount the futures suggest, it would rank as the fourth-largest one-day point loss ever for the index, according to Dow Jones Indexes.
S&P 500 futures were down 64.50 points, far below fair value, a mathematical formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Nasdaq 100 futures slid 77.25 points.
Investors will closely scrutinize remarks by U.S. Treasury Secretary Henry Paulson on the economy, which are due at 8 a.m..
Bank of America's stock was down to $34.06 before the opening bell while Wachovia fell to $29.75.
If U.S. stocks open at the levels futures are currently indicating, it would push major indexes dangerously close to bear market territory -- or a 20 percent drop from their peak in October. That would mark the death of the bull market that began in early October 2002.
The drop in futures follows the worst week in five years for the S&P 500. On Friday, stocks fell for a fourth day, on worries that a White House effort to boost the economy may not prevent a recession.
President George W. Bush on Friday called for a package worth up to $150 billion in tax cuts and other measures to shore up the economy, but investors said the plan did not go far enough.
"The only thing that could save this market is if (Federal Reserve Chairman Ben) Bernanke immediately cut interest rates by 100 basis points, perhaps that could reverse market psychology," said Cardillo.
The Standard & Poor's 500 index closed on Friday down 15.33 percent from its peak close on October 9. A fall into bear market territory for the S&P 500 would mean the end of the second-longest bull market for the benchmark index since 1929, according to the Stock Trader's Almanac.
Among other S&P 500 companies scheduled to report quarterly results are bond insurer AMBAC Financial Group, iPod, iPhone and computer maker Apple Inc and drug maker Johnson & Johnson.
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