U.S. President Barack Obama will meet with Congressional leaders at the White House at 10 a.m. New York time to discuss ways to avoid sequestration striking, but hopes are low for a deal as Democrats and Republicans have so far failed to reach a compromise.
In an investor note, Deutsche Bank's chief U.S. economist, Joseph LaVorgna, said the sequester could take 40 basis points off 2013 gross domestic product, "and possibly higher, depending on whether the fiscal multiplier is positive".
"However, we believe there is a good chance that sometime over the next few weeks, the Administration and Congress will water down these spending cuts," LaVorgna added. "This will be the compromise necessary to extend the continuing resolution which funds the government, but expires on March 27."
(Read More: Dow Hangs Under Record High as Sequester Looms)
European shares declined following weak euro zone manufacturing data, which showed activity continued to fall in February. In addition, Italy released data which showed unemployment in the country reached a 21-year high of 11.7 percent in January. Italy is also mired in political uncertainty after national elections on Sunday and Monday left no party with sufficient majority to govern.
(Read More: Why Italy's Stalemate Could Mean Chaos for Euro Zone)
In Asia, shares were pushed downwards by official manufacturing data for China that was below analysts' forecasts. The National Bureau of Statistics said the Purchasing Managers' Index (PMI) eased to 50.1 in February, down from January's 50.4. A reading above 50 indicates a sector expansion.
Among earnings, Best Buy rallied after the consumer electronics giant posted quarterly results that topped expectations. The company originally planned to report its earnings on Thursday but delayed its release after former Chairman and CEO Richard Schulze's deadline to submit a buyout proposal to the Best Buy's board to take it private.
Groupon gained after the daily-deal website said it is parting ways with CEO Andrew Mason, a day after the company reported disappointing fourth-quarter earnings along with a weak outlook.
Also on the economic front, the Institute for Supply Management's (ISM) manufacturing index, is scheduled for release at 10 am ET. Economists polled by Reuters estimate a reading of 52.1 from 53.1 in the previous month.
The University of Michigan Consumer Sentiment survey expected at 9.55 a.m ET. The monthly index is a gauge of how consumers feel the economic environment will change. Economists expect a reading of 76.3, according to a Reuters survey.
And construction spending data for January will be released at 10 am ET.