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Futures Off Lows as Banks Offset Euro Fears

Stock index futures pointed to a drop at the start of trading Monday, with concerns over the euro zone sovereign debt crisis and the nationalization of Spanish bank CajaSur adding to selling pressure.

But futures were well off their morning lows as banks showed signs of strength.

Citigroup shares gained nearly 2 percent in premarket trading following an upgrade to "buy" from Goldman Sachs, which revised its ratings on several banks based on current market volatility. Citi shares have tumbled more than 26 percent in the past month.

Banks overall were marginally higher after leading Friday's rally, with the SPDR Financial exchange-traded fund, which closely tracks the S&P 500 financial sector, edging up premarket.

Pressure came as the Bank of Spain seized troubled CajaSur with 500 million euro ($624 million) in funding to keep it solvent.

The move pushed the euro lower and left investors concerned about the country’s fiscal health. The dollar jumped 1.2 percent against a basket of foreign currencies.

"It looks as if the fear trade is back in the market," John Brady, vice president at MF Global, said of the currency moves.

Brady told CNBC the slump in futures is likely a reaction to Friday's late short-covering rally that concluded a day of whipsaw trading and left the Dow up more than 1 percent for the session.

The CajaSur nationalization comes at a time of rising concerns over Spanish credit-worthiness, despite the European Union's decision earlier this month to put together a safety net for distressed European economies.

Credit fears permeated the markets, with three-month Libor rates—the cost for overnight interbank lending—reaching its highest level of 0.51 percent since July 2009.

Most Asian indexes were up, with China’s strong performance supporting neighboring markets. But Asian investors continued to keep one eye fixed on the debt problems in the euro zone.

Commodities were mixed as oil slipped below $70 per barrel and gold rebounded nearly 1 percent.

Closer to home, Campbell's Soup said its quarterly earnings fell 3.4 percent due to expenses from the new health care law as well as restructuring. Campbell's shares have fallen 2.7 percent in the past 30 days though it has outperformed its peers.

In Britain, U.K. Chancellor of the Exchequer George Osborne was set to unveil a £6 billion package ($8.68 billion) of spending cuts, and Adam Posen, a member of the Bank of England's Monetary Policy Committee, was due to speak.

His comments could give investors hints to future shifts in monetary policy.

On the economic calendar, April’s existing home sales will be announced at 10 am New York time, with economists predicting an annual rate of 565 million, up from March’s rate of 545 million.