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Futures spiked following news that the Federal Reserve will create a facility to support consumer lending.
The Fed, in another massive life-support move to triage the U.S. financial system, on Tuesday announced a $600 billion program to buy mortgage-related debt and securities and a $200 billion facility to buy consumer debt securities.
The U.S. central bank said it would buy up to $100 billion in debt issued by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks, the government-sponsored mortgage finance enterprises. The Fed also said it would buy up to $500 billion in mortgage-backed securities backed by Fannie Mae, Freddie Mac, and Ginnie Mae.
Meanwhile, GDP was revised to show the economy shrunk 0.5 percent in the third quarter from the prior estimate of a 0.3-percent contraction, in-line with economists' expectations.
Traders were taking a cautious approach a day after the stock market's biggest two-day rally in more than 20 years.
A government bailout for Citigroup and clarity on the incoming government's economic team helped the Dow Jones Industrial Average secure a 4.9 percent gain Monday, adding to Friday's near 500-point leap.
The two trading days mark the best performance for US stocks since the rebound after the 1987 crash. Despite the rally, many investors remained wary of further weakness to come.
"We've been testing these so-called lows the last three weeks and we've broken through them," Rob Morgan, market strategist from Clermont Wealth Strategies, told "Worldwide Exchange." Morgan expects recent lows to be retested, but that could point to further strength if they hold, he said.
Futures were indicating tepid gains for the Tuesday opening, with Dow trading actually below fair-value levels.
Citigroup [C
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] shares clawed back much of their recent slump with a 57.8 percent one-day rally Monday. Investors welcomed government plans to guarantee over $300 billion of the bank's troubled assets and inject $20 billion from the TARP.
The stock held on to the gains in pre-market trading and indicated a gain of 1.3 percent and moving above the $6 mark.
One investor welcoming the government intervention and stock turnaround was Saudi Prince Alwaleed bin Talal. Talal, who is building a 5 percent stake in Citi and who told CNBC he has "full confidence" in the group's CEO Vikram Pandit.
Fears of rising unemployment couldn't be forgotten as reports of more layoff kept coming.
Internet search giant Google [GOOG
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] is expected to slash the number of contract workers it uses, according to a report from the Wall Street Journal, while ArcelorMittal warned of layoffs. Google shares edged lower in premarket trading.
Still to come: November's consumer confidence numbers are out at 10 am when the Richmond Fed manufacturing index is also released.
Treasury Secretary Henry Paulson will speak at 10 am, while President-elect Barack Obama will speak at noon. Both events will be streamed live on CNBC.com.
On the earnings front, DR Horton [DHI
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] posted earnings before the bell that reflected a wider quarterly loss of $2.53 per share, or $799.9 million, compared with 16 cents per share, or $50.1 million, a year ago.
Dollar Tree also will post its earnings.
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Data is a real-time snapshot *Data is delayed at least 15 minutes