Futures Lower on Durable Goods Drop

U.S. stock index futures tumbled Wednesday after a sharp drop in orders for long-lasting goods provided further proof that the US economic recovery has stalled.

Durable goods orders overall for Julygained 0.3 percent, but stripping out transportation the number actually fell 3.8 percent. Forecasts called for a 2.8 percent increase on the headline number and a 0.3 percent drop ex-transportation.

The downside surprise sparked a sharp selloff in futures, in the wake of four straight sessions of losses for the Dow Jones Industrial Average and ahead of more numbers on the state of the housing market.

The Dow has dropped for nine of the past eleven trading days and 15 of the past 20. The Standard & Poor's 500 has slipped back into correction mode, falling 13.6 percent off its April 23 high.

European shares were lower after Standard & Poor's cut Ireland's credit rating with a negative outlook. Germany's Ifo index showed business morale at its highest since June 2007, but the news failed to produce lasting gains. Asian stocks ended mostly in the red, taking their cue from Wall Street weakness.

Investors will get further insight into the battered housing market, after Tuesday's disappointing existing home sales data, as the government releases new home sales figures at 10 am New York time. Sales are expected to show a slight 0.9 percent improvement for July after jumping 23.6 percent in June.

At 10:30 am, the Energy Information Administration will issue its weekly report on oil and gasoline inventories, and shortly after 1 pm, the results of the Treasury's $36 billion auction of 5-year notes will be released.

Meanwhile, central bankers, economists and other officials from around the world headed to Jackson Hole, Wyoming, to assess the economic outlook at the Federal Reserve’s annual retreat.

In corporate news, FedEx is suing New York attorney general Andrew Cuomo, seeking to stop an investigation of the company. The overnight delivery service says Cuomo has exceeded his authority in seeking information on rates, routes, and price information.

On the merger and acquisition front, Rio Tinto will not launch a bid for Potash , according to reports citing sources. The Canadian fertilizer company is trying to solicit alternative offers to the $130 per share being offered by BHP Billiton . For its part, BHP is dampening expectations of a much higher bid, saying it will remain disciplined.

3Par , which is the object of bids from both Dell and Hewlett-Packard , has begun talks with HP, whose $24-a-share bid trumps Dell's $18-a-share offer by a wide margin, though there has been speculation Dell might raise its offer.

And Apple is in talks with News Corp, Walt Disney , and other media companies about renting TV shows to viewers for 99 cents each through iTunes.

- Peter Schacknow, Senior Producer, CNBC Breaking News Desk, contributed to this report.