US stocks futures drop on economy woes; Dell, AIG drag

US stock index futures fell on Friday as investors worried the US economy may be on the cusp of recession after disappointing quarterly results from American International Group Inc and Dell Inc . The media reported that a rescue plan for bond insurer Ambac Financial Group Inc had hit a snag added to worries about the financial services sector. As investors' appetite for risk fell, they gravitated from stocks to the relative safety of U.S. Treasuries, pushing up prices and sending the two-year government note yield below 1.75 per cent, a four-year low. The dollar, meanwhile, fell to a three-year low against the yen. Wall Street was poised to take a beating across the board, with Dell, the world's second-largest personal computer maker, set to hurt technology shares after its results missed estimates. Dell fell nearly 4 per cent in European trading. Financial company shares were expected to slide on fears the housing turmoil could spawn more credit losses. AIG's shares fell 4.7 per cent after the world's largest insurer posted a $5.29 billion fourth-quarter loss, hurt by write-downs of securities linked to bad mortgage bets. "We're headed for another rough start to trading here. Everyone was hoping the problems in the financials were almost done and we'll see things improve," said Peter Dunay, chief investment strategist at Meridian Equity Partners in New York. S&P 500 futures were down 12.9 points, below fair value, a pricing evaluation that accounts for interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures slid 126 points, and Nasdaq 100 futures dropped 15 points. Early in the week investors had tried to shrug off weak economic reports, encouraged in part by efforts to avert credit downgrades for bond insurers that could further harm the financial sector. By Thursday, however, optimism faded and investors got a jolt from Federal Reserve Chairman Ben Bernanke, who said on Capitol Hill that small banks that invested heavily in real estate could collapse as the housing downturn drains their capital. On the economic front, the Commerce Department's personal income and consumption data for January is scheduled for release. A release of National Association of Purchasing Management-Chicago business barometer for February will follow. Economists polled by Reuters expect a rise of 0.2 per cent for income and spending. The median forecast from analysts polled by Reuters is for the Chicago PMI to ease to 49.7 from 51.5 in January. A reading above 50 indicates expansion. An unexpectedly low reading would likely give bonds a further boost as investors search for safer-haven assets. US stocks fell on Thursday as investors fretted over a fresh sign of weakness in the job market and Bernanke's warning on banks.