Futures Fall, Tracking China's 6% Selloff

Stocks were set for a lower open as a major selloff in China set the stage for a rough day on the US markets.

Futures were indicating a drop of more than 0.5 percent, far less than the 6.7 percent plunge in China's Shanghai but enough to threaten the momentum the market has seen for the past six months.

The last trading day of August begins with some significant positives in the books: barring a major selloff Monday, the S&P 500 and the Nasdaq will chalk up their sixth straight monthly gains, and the Dow will have its fifth monthly gain in the past six months.

The economic calendar is relatively light, as investors look ahead to key readings later in the week such as Tuesday's August auto sales numbers and Friday's August employment report.

The Chicago Purchasing Managers Index is out at 9:45 am New York time, with economists looking for a reading of 48.0 vs. July's reading of 43.4.

The earnings calendar is virtually empty for this final day of August.

In market action, Barron's said shares of battered insurer American International Group are overpriced, sending the stock down more than 7 percent in premarket trading. The stock has more than doubled in prices since a 1 for 20 reverse split on June 30.

Morgan Stanley shares fell 3 percent premarket following a downgrade from Bank of America-Merrill Lynch that came in part because of a belief that more investors are turning retail rather and institutional brokerages. BofA-Merrill also said Morgan's shares are no longer undervalued.

On the plus side, Barron's said video game publisher Activision Blizzard , home of the wildly popular "Guitar Hero" series, will benefit as the industry shifts from console games to online subscriptions. Shares gained about 3 percent premarket.

A fall in energy prices also was weighing on the stock indexes. The price of US light, sweet crude dropped nearly $2 to below $71 a barrel.

Smallcap pharmaceutical Delcath Systems saw its shares soar more than 48 percent after health regulators granted an orphan drug status to doxorubicin, a chemotherapy agent, for the treatment of primary liver cancer.

In deal news, Baker Hughes said it was buying oilfield services company BJ Services in a stock and cash deal worth $5.5 billion.

The deal represents a 16 percent premium over BJ's closing price Friday, sending shares up more than 11 percent premarket. Baker Hughes dropped nearly 3 percent.

The curious rise in government-sponosored entities Fannie Mae and Freddie Mac may be running out as well: FBR Capital said the August surge of the two stocks was based on specultation of a reverse stock split. Shares of both companies fell more than 6 percent premarket.

Some surveys of interest before the opening bell: Economists polled by The National Association for Business Economics say the U.S. does not need a second stimulus. Rather, they say the government should focus on cutting spending over the next few years.

And a Thomson Reuters survey says fewer Americans fear not being able to pay for health care services.

As the first anniversary approaches of the Lehman Brothers collapse, PriceWaterhouseCoopers says claims against Lehman could reach as much as $100 billion.

— Peter Schacknow contributed to this report.