Wall Street was headed for a lower open on Tuesday as producer prices rose more than expected, igniting fears of inflationary pressures, and a gauge of manufacturing activity in New York state unexpectedly plunged in December.

Investors worried that rising prices would prompt the Federal Reserve to revise its low-interest-rate policy, which has been partly responsible of increased risk-taking.

Both PPI and the Empire State manufacturing survey have an intertwining theme and that is increasing prices. That is the one thing the market is most fearful of, said Burt White, managing director and chief investment officer at LPL Financial in Boston.

The market's worried about what's going to make the Fed put the brakes on. Everyone's on inflation watch.

S&P 500 futures fell 4.4 points and were below 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 dropped 36 points, and Nasdaq 100 futures lost 7.25 points.

The Labor Department said the producer price index rose 1.8 in November, much more than the forecast 0.8 percent rise.

The New York Fed's Empire State general business conditions index fell to 2.55 in December from 23.51 in November.

The U.S. dollar strengthened against the euro and the dollar index <.DXY> rose 0.6 percent to its highest level since early October.

The Fed will kick off a two-day policy-setting meeting later Tuesday, with a statement on the economy expected around 2:15 p.m. EST (1915 GMT) on Wednesday.

(Additional reporting by Leah Schnurr; editing by Jeffrey Benkoe)

Down Inflation