Stock futures turned positive following separate reports that showed the pace of layoffs is beginning to slow.
Outplacement firm Challenger, Gray & Christmas said planned layoffs in April fell to 132,590, while ADP said private employment decreased by 491,000 in April. Both were better than market expectations and provided further evidence that the economic decline was beginning to ebb.
Fears over the state of the banking sector had weighed on futures earlier following a report that Bank of America needs around $34 billion in fresh capital.
The government’s closely-watched stress tests, which are due for release on Thursday, have found BofA in need of more funds than previously reported, a source familiar with the situation told Reuters.
But shares of Bank of America turned positive an hour before the market opened after being lower more than 9 percent earlier.
The tests are adding to uncertainty over the banking sector, which was one of the hardest hit by the credit crisis, but has since staged a strong recovery rally. Analysts told CNBC that the results may not draw a line under the doubts, however.
Meanwhile, American International Grouprevealed that it paid out some $454 million in performance-related bonuses for 2008. The previously undisclosed payments come on the back of the insurance giant’s highly contentious retention bonuses, which totaled some $165 million. Shares fell more than 4 percent premarket.
AIG disclosed the payments when answering questions from a U.S. lawmaker.
The market also was being hit by news that General Motors is looking to consolidate its battered shares via a 1-for-100 reverse stock split. Under the plan, a GM share holder with 100 shares would see them grouped together in one.
GM shares tumbled nearly 19 percent in premarket trading.
An early dose of fairly good economic news failed to cheer traders as outplacement consultant Challenger, Gray & Christmas reported that planned layoffs fell for the third consecutive month. Employers announced 132,590 layoffs in April, a 12-percent drop from the 150,411 layoffs recorded the previous month.
Also, Walt Disney shares gained nearly 5 percent premarket a day after the company reported earnings that were better than the market expected.
European stocks were broadly higher, thanks in part to better-than-expected earnings from French bankBNP Paribas. Asian indexes closed mixed with the financial-sector fears impacting the session.
On the economic front, April’s ADP employment survey will be released at 8:15 am New York time, and investors will look to it for clues on how bad the government's non-farm payrolls number, due to be released Friday, will be.
And there will be a Senate Banking Committee hearing on companies deemed too big to fail at 9:30 am. FDIC Chairman Sheila Bair and Minneapolis Fed President Gary Stern will testify at the hearing.
Oil prices looked set to remain in focus, having hit 2008 highs above $55 at the start of the week. US inventory data is due to be released at 10:30 am.