Futures Retreat, Hit By Big Morgan Loss

U.S. stock index futures fell Wednesday, when enthusiasm about the Federal Reserve's near-zero target rate waned and worries about how long and how deep the recession will be were reignited.

On Tuesday, the Fed set a target for overnight interest rates to a record low of zero to 0.25 percentrather than setting a single interest rate, and said it would employ "all available tools" to battle the recession.

But some analysts started wondering what tools central banks really have, as the Fed's move may force others to follow suit. Others said the move may fuel a bubble in bonds as investors look for safe returns.

While the market was still retaining much of its Tuesday gain, futures indicated a drop of about 1 percent across the board.

The Treasury does not plan to ask Congress for the rest of the $700 billion TARP program, at least not until Treasury Secretary Henry Paulson leaves office in about a month, Paulson told CNBC.

This could change if there is an emergency in the markets, Paulson said, but added that he does not expect any more big financial institutions to fail.

In the banking sector, Citigroupis combining its corporate and investment banking businesses, to streamline and cut costs, according to Reuters, while analysts told CNBC that the bank's "supermarket" model is dead.

Citi shares dropped 3.4 percent in premarket trading, reflecting an early weakness in financials that were the main drag on futures.

In Europe, BNP Paribas shares slumpedafter it said its investment bank unit had a 710 million euro ($994.8 million) loss for the first 11 months of the year.

And investment bank turned bank holding company Morgan Stanleyreported a much wider than expected quarterly loss of $2.24 a year against analyst estimates of 33 cents, sending shares down 6 percent premarket.

Meanwhile, in the scandal of one of the biggest pyramid schemes in history, the Securities and Exchange Commission Chairman Christopher Cox asked the agency's inspector general to investigate the SEC's conduct with regard to the alleged Ponzi-scheme linked to money manager Bernard Madoff, CNBC has learned.

In other earnings news, General Mills missed analyst estimates with a profit of $1.09 a share compared to expectations of $1.23, but shares gained nearly 3 percent premarket after the company raised its full-year outlook to $3.83 to $3.87 a share against earlier estimates of $3.81 to $3.85.

Home builder Hovnanian Enterprises said its quarterly loss attributable to common stock narrowed to $450.5 million in the fourth quarter, or $5.79 a share, compared to $469.3 million, or $7.42 a share a year earlier.

In corporate news, pharmaceutical giant Bristol-Myers Squibb said it was cutting its workforce another 10 percent through 2010.

And Apple shares continued to be under pressure, slipping 3.8 percent premarket after CEO Steve Jobs said the company was dropping its annual Macworld Expo in January because it is a small part of how the company markets its products.

Asian markets closed mostly higher but European shares were trading in the red after opening higher.