Stock index futures drop on Libya tensions

LONDON (Reuters) -At 5.08 a.m. futures for the S&P 500, Dow Jones and Nasdaq futures were down 0.9 to 1.6 percent as political tensions in Libya intensified. * In Libya, fighting was now spreading to the capital Tripoli after erupting in the country's oil-producing east last week.

Libyan leader Muammar Gaddafi vowed defiance on Tuesday, making a fleeting television appearance to disdain protesters and deny he had fled the country.

* Elsewhere in the Middle East, two Iranian naval ships entered the Suez Canal, a canal official said on Tuesday and were heading toward the Mediterranean, a move certain to anger Israel.

* U.S. crude futures hit a 2-1/2 year high on concern the Libyan unrest could cut more of the OPEC-member's output and that a similar story could play out in other top oil producers in North Africa and the Middle East.

* In earnings news, Wal-Mart Stores' quarterly results are expected to show whether the fresh management team at the U.S. discount chain has seen sales turn the corner.

* Hewlett-Packard , the world's largest technology company by revenue is forecast to report strong demand for networking equipment, servers and storage, but relatively lackluster sales of low-margin personal computers due to weak consumer spending.

* Other companies reporting include fourth-quarter results from Home Depot , Macy's , Cabot Oil & Gas and RadioShack .

* Elsewhere, BHP Billiton said it was buying shale gas reserves from Chesapeake Energy Corp for $4.75 billion, in a deal which sets it further apart from its mining peers with a big bet on the world's biggest gas market.

* A source with direct knowledge of the situation said on Tuesday U.S. life insurer Metlife Inc has drawn three bidders for its Taiwan unit and is expected to seal a deal by as early as April.

* On Sunday, Dynegy Inc's top management announced their resignations after failing to sell the company for the second time in a year.

* On Monday, consumer electronics retailer Best Buy Co Inc said it would close its branded stores in China and Turkey as part of an effort to generate savings of up to $70 million by fiscal 2013.

* Investors will also focus on the S&P Case-Shiller December report on house prices at 1400 GMT, while both the Richmond Federal manufacturing and service sectors index and the U.S. Consumer Confidence data for February are released at 1500 GMT.

* The U.S. markets were closed on Monday for the Presidents Day holiday, but on Friday stocks pushed higher for a third week, despite growing signals of an overheating market.

The Dow Jones industrial average <.DJI> gained 0.6 percent, the Standard & Poor's 500 Index <.SPX> added 0.2 percent and the Nasdaq Composite Index <.IXIC> edged up 0.1 percent.

* In Europe, the pan-European FTSEurofirst 300 <.FTEU3> index of top shares fell 0.9 percent extending the previous session's losses on the Libyan worries.

(Reporting by Joanne Frearson; Editing by Jon Loades-Carter)