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Futures Up on Europe Relief; Jefferies Jumps

US stock index futures pointed to a strong gain for Wall Street as new developments in Europe gave investors' hope and the housing market continued to show signs of recovery.

Housing starts and building permits both rose sharply in November, data that reinforced recent numbers showing gains in builder sentiment and increases in sale prices.

The news came after a report showing German business optimism rising unexpectedly and as Spanish short-term financing costs fell sharply.

The Ifo think-tank, based in Munich, surveys around 7,000 German companies monthly andits index of business optimism rose to 107.2 in Decemberfrom November's 106.6 and against expectations for a drop to 106.1 by economists surveyed by Reuters.

A break-up of the euro would be “absurd” and “unthinkable,” Vitor Constancio, Vice-President of the European Central Bank (ECB), told CNBC in an interview, the latest attempt by the ECB to dampen speculation that the single currency may not survive the region’s debt crisis after its most difficult year since being introduced.

Yields on three and six-month Spanish treasury bills fell sharply and demand surged in an auction on Tuesday, with analysts saying, according to Reuters, that banks were waiting to tap into an ECB three-year liquidity offer on Wednesday to pay for the higher-yielding Spanish bonds.

For the US market, the trick will be to reverse a trend that has permeated December, in which the market opens at or near its highs for the session and fails to sustain its gains through the day.

In the US, the House of Representatives, led by Republicans, is at odds with Senate Democrats over an extension in the payroll tax, which is now seen by some as a proxy for electoral battles ahead of next year's presidential race.

Richmond Federal Reserve Bank President Jeffrey Lacker said the economy will continue to expand moderatelyand inflation will be kept in check next year.

In company news, investors are likely to watch shares of AT&T as the telecommunications giant announced late on Monday it was ending its deal to buy Deutsche Telekom's T-Mobile USafter opposition from the US government. Deutsche Telekom's shares were down in a rising market.

This marks the eight deal this year valued at more than $10 billion to fail, the most since 2008, according to Dealogic.

Competitors SprintNextel and Clearwire both saw shares trade significantly higher higher premarket on the news, while AT&T edged lower.

Jefferies, the investment bank that only a short time ago found itself under scrutiny for exposure to the European debt crisis, reported eaernings of 21 cents a share that blew past market expectations, largely on the strength of reducing its leverage. The company also declared a quarterly dividend of 7.5 cents a share, and its stock jumped 6 percent in premarket trading.

Bank of America shares surged early, a day after the company saw its share price slip below the critical $5 level as concerns grew over how the banks could withstand tougher capital rules and European contagion.

On the downside, software company Red Hat saw its shares slide following a disappointing earnings report after the closing bell Monday. The company's stock had surged 65 percent over the past two months.

Lockheed Martin's F-35 jet was picked up by Japan as its next mainstay fighter, deciding to buy 42 of the planes.

And the International Trade Commission ruled that HTCinfringed one out of four patents at the center of a case brought by Apple against the Taiwanese phone maker, handing Apple a narrow victory.