Stock index futures were set for a lower open on Wednesday as markets were unnerved by Germany's decision to ban naked short selling of certain financial instruments and comments from its chancellor that the euro was in danger.

Germany banned naked short sales of euro-denominated government bonds, credit default swaps based on those bonds and shares in the country's 10 leading financial institutions in a move that appeared to catch its partners in the European Union off guard, who said they were not consulted.

German Chancellor Angela Merkel said in a speech to parliament the euro was in danger, urging speedy action to stop market extortion, and said the EU needed a process for orderly insolvency of its members.

European shares fell sharply as Germany's move sparked concerns of tighter regulation, and the euro fell to a four-year low of $1.2145 before bouncing back above the $1.23 level.

It took them a long time to put the package together for Greece, yet there still is bickering, said Tim Ghriskey, chief investment officer of Solaris Asset Management in Bedford Hills, New York.

The EU has to act more as a united group and act proactively and quickly in order to calm the markets. But so far, we really haven't seen that.

In naked short selling, a trader sells a financial instrument, betting that its price will fall, without first borrowing the instrument or ensuring that it can be borrowed, as in a conventional short sale.

S&P 500 futures fell 4.5 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 5 points.

Data from the Labor Department showed U.S. consumer prices unexpectedly fell in April for the first time in a year, with the core annual rate recording its smallest gain since 1966.

After the closing bell on Tuesday, Hewlett-Packard Co reported results that beat expectations, and the company raised its full-year earnings outlook. Its stock rose 2.9 percent to $48.15 in premarket trade on Wednesday.

Deere & Co shares added 3.6 percent to $59.20 after the farm equipment maker posted a stronger-than-expected quarterly profit and raised its full-year outlook.

Target Corp shares rose 0.5 percent to $54.50 after the retailer posted a first-quarter profit, and food producer Hormel Foods Corp fell 3.1 percent to $40.50 after reporting second-quarter earnings.

Other companies reporting quarterly earnings on Wednesday include Limited Brands Inc , Autodesk , Applied Materials Inc .

Later Wednesday, the Federal Reserve's policy-making committee will release minutes from its most recent meeting.

(Editing by Padraic Cassidy)

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