Futures for the Dow Jones industrial average, the S&P 500 and the Nasdaq 100 were down 2.2 to 2.5 percent at 0915 GMT (5:15 a.m. ET) on Tuesday, pointing to a steep decline on Wall Street.

World stocks tumbled on Tuesday, with Japan's Nikkei losing 3.1 percent and European shares down 2.8 percent in morning trade, hit by renewed worries over the euro zone banking sector after the Bank of Spain's rescue of a savings bank over the weekend, and by a report that North Korean leader Kim Jong-il has ordered his military to be on a combat footing.

The euro fell as concern about the euro zone's banking system fanned strains in money markets, boosting demand for dollars across the board. Crude oil extended a drop toward $68 a barrel and copper fell about 2 percent.

U.S. two-year swap spreads pushed out to their widest levels in 13 months on Tuesday, with traders expecting benchmark dollar LIBOR to keep ratcheting higher as the euro zone debt crisis makes banks wary of lending to European institutions. Analysts said the combined sell-off in equity and credit markets, along with the relentless rise in dollar funding costs, was threatening to hobble the financial system a little more than a year after pulling out of the subprime mortgage crisis.

U.S. Treasury Secretary Timothy Geithner told future Chinese leaders that the Obama Administration will cut its budget deficit once it is sure the economy is safely growing.

Geithner heads for London after the conclusion of a two-day Strategic and Economic Dialogue with China. He meets new British finance minister George Osborne before traveling to Frankfurt for meetings with European Central Bank President Jean-Claude Trichet and to Berlin for a Thursday meeting with German Finance Minister Wolfgang Schaeuble.

Potential Chinese moves to lower trade barriers could be as important as exchange rate reforms in easing economic strains with the United States, Washington's top trade negotiator said on Tuesday.

ICSC/Goldman Sachs release at 1145 GMT chain store sales for the week ended May 22, versus the prior week. In the previous week, sales fell 2.5 percent.

At 1300 GMT, Standard & Poor's releases its S&P Case/Shiller Home Price Index for March. Economists in a Reuters survey expect a fall of 0.3 percent versus a 0.1 percent fall in the previous month.

AT 1255 GMT, Redbook releases its Retail Sales Index of department and chain store sales for May versus April. In the prior period, sales rose 0.7 percent.

At 1400 GMT, the Conference Board releases May consumer confidence. Economists in a Reuters survey expect a reading of 59.0 compared with 57.9 in April.

The Federal Housing Finance Agency issues at 1400 GMT Home Price Index for March, while Federal Reserve Bank of Richmond releases May indexes on area manufacturing and service sectors.

AutoZone, the largest U.S. auto-parts retail chain, and medical device maker Medtronic are scheduled to announce results.

Walt Disney Co has ended discussions to sell its struggling Miramax Films division back to Hollywood producers Harvey and Bob Weinstein, the Wall Street Journal said, citing people familiar with the matter.

Private equity firm Blackstone Group LP has joined a group bidding $1.5 billion for Australian hospital operator Healthscope , a source familiar with the situation said.

AAR Corp shares fell more than 9 percent in extended trading on Monday after the aviation and defense supplier provided its outlook for fourth quarter results.

Japan's Nikkei average <.N225> dropped 3 percent to its lowest close in six months on Tuesday, as the euro fell further on worries that Europe's woes now included the health of some banks in addition to sovereign debt problems.

U.S. stocks slid on Monday, driving the Dow to its lowest level since February 10. The Dow Jones industrial average <.DJI> dropped 126.82 points, or 1.24 percent, to 10,066.57. The Standard & Poor's 500 Index <.SPX> slipped 14.04 points, or 1.29 percent, to 1,073.65. The Nasdaq Composite Index <.IXIC> fell 15.49 points, or 0.69 percent, to 2,213.55.

(Reporting by Atul Prakash; Editing by Jon Loades-Carter)

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