Futures Higher as Fears Ease Over North Korea

US stock index futures pointed to a higher open on Wall Street Monday despite concerns of instability in Asia caused by the death of North Korean leader Kim Jong il, announced overnight.

The North Korean leader died of a heart attack while on a train trip, state media reported, sparking immediate concern over who is in control of the reclusive state and its nuclear program.

Asian stocks dropped on the news. European shares reversed early losses and edged higher in mid-morning trade, halting a sharp 1-1/2 week sell-off, as investors bought up shares in sectors seen as defensive, such as Unilever and Telefonica.

Yet US futures rebounded to show a modestly positive opening, despite worries that Kim's death would spark instability in the region.

However, history suggests that in previous similar events, the longer-term effects on Asian markets, and the spillover effect on other global markets, has been minimal.

"Until there is more clarity with regards to the succession outlook and political stability in North Korea along with the South Korean government response, we see no fundamental increase in regional instability," Bryan Song, analyst at Bank of America Merrill Lynch, told clients. "Thus, until we see any further developments, we recommend investors not to panic and sell off Korean equities."

Elsewhere, a tax break for 160 million U.S. workers was in doubt on Monday in the face of strong opposition from Republicans in the House of Representatives who have rejected a two-month extension overwhelmingly approved by the Senate over the weekend.

In company news, Saudi billionaire Prince Alwaleed bin Talal, an investor in some of the world's top companies, on Monday unveiled a $300 million stake purchase in fast-growing microblogging site Twitter, gaining another foothold in the global media industry.

Procter & Gamble, the world's largest maker of household products, has halted full-time hiring for this fiscal year, a company spokeswoman told Reuters, confirming an earlier report.

Talks over potential asset sales as part of AT&T’s efforts to get approval of its $39 billion purchase of T-Mobile USA have gone cold, according to a report in The Wall Street Journal on Sunday.

Meanwhile, investors expect economic data from the National Association of Home Builders' which publishes its December housing market index at 10 am in New York.

Futures had indicated earlier that the market would carry over Friday's downbeat mood that arose after Finch's Ratings Service said it was prepared to downgrade France, Spain, Italy and three others.

But Dennis Gartman, who runs a hedge fund and publishes the widely followed investor guide The Gartman Letter, said investors instead should be focused on European Central Bank efforts to support sovereign debt.

The ECB will be the conduit for what it calls Long Term Refinancing Operations, or LTROs, that will allow banks to borrow money at low rates that then must be used to buy high-yielding government debt.

The effect, he said, would likely be on the level of the US Federal Reserve's quantitative easing program, which used money printing to buy up mortgage and Treasury debt. The European version is likely to last three years.

"This should be sufficiently long to do measurable and substantial good for the bank’s balance sheets, restoring profitability and a sense of permanence where unprofitability and a sense of impending doom had been the previous order of the day," Gartman said.

Closer to home, traders will be watching the charts of the Dow industrials and Standard & Poor's 500, both of which are nearing what is known as a "Golden Cross," where the 50-day moving average passes above the 200-day moving average. The event is normally bullish for stocks.

This week and next are historically two of the strongest weeks of the year — so the odds continue to favor a rally," Kenneth Polcari at LandColt Trading said in his morning analysis. "Any positives will be met with a party as investors long for better days ahead."