Futures Drop After Fed Auction Statement

Futures rose Tuesday after the U.S. Federal Reserve announced a major step to help support strained commercial-paper markets.

As speculated, the central bank said it was creating a special facility to help the $1.7 trillion commercial paper market. The Commercial Paper Funding Facility will buy unsecured and asset-backed commercial paper directly from eligible issuers.

"Terrific news," Gordon Charlop, of Rosenblatt Securities, said of the Fed announcement. " Frees up money markets. If you just look around at some of the valuations ... book value versus earnings, there seems like there's some opportunities here."

The Dow plunged as much as 800 points on Monday before a late comeback pared losses. But the benchmark index still ended below 10,000 for the first time in four year.

Shares in Asia were mixed. Japan shed 3 percent, but markets closing later received a boost after Australia unexpectedly cut rates by a full percentage point. That led to speculation that central banks across the globe are preparing a coordinated set of rate cuts.

And European markets were mixed in morning trading. The Aussie rate cut lent support to the major indexes early on, but then a wave of selling in three major UK banks put investors back on the defensive.

Royal Bank of Scotland sank more than 30 percent, while Lloyds TSB and Barclays lost more than 10 percent after the BBC reported that all three banks had sounded out the UK finance minister for public funds.

Lloyds declined to comment to CNBC, while a Barclays spokesman told Reuters the bank had "categorically not" requested any funds from the UK government.

Earnings Season Starts with Little Fanfare

Traditionally investors would be focused on Alcoa results -- due after the bell with analysts expecting a slight decline in profit -- which traditionally kick off earnings season.

But banks are even stealing the earnings spotlight, with Bank of America reporting a 68 percent decline in profit after the bell Monday. Shares of Bank of America sank more than 9 percent in premarket trading.

The Fed, along with the Treasury is mulling  some other options to support the commercial-paper market, including funding a special-purpose vehicle as opposed to an outright purchase of commercial paper, or short-term debt. Sources said an announcement could come as early as today.

Fed Chairman Ben Bernanke is expected to speak at 1:15 p.m. ET and the Fed is slated to release minutes from its last meeting at 2 p.m. At 3 p.m. is a report on consumer credit.

© 2008 CNBC.com