By Ellis Mnyandu
NEW YORK (Reuters) - Stock index futures fell on Tuesday after Federal Reserve Chairman Ben Bernanke said global financial markets face extraordinary stress, and he urged Congress to act quickly on a proposed $700 billion financial system bailout.
In testimony to be delivered to a Senate committee and obtained by Reuters, Bernanke said, "Action by Congress is urgently required to stabilize the situation and avert what could otherwise be very serious consequences for our financial markets and our economy."
Investors worry that political wrangling might snag the passage of what is likely to be one of the costliest U.S. bailouts since the Great Depression.
Influential Oppenheimer & Co bank analyst Meredith Whitney cut her outlook on U.S. banks, saying the government bailout plan has little hope of improving core fundamentals over the near and medium term. She forecast more dividend cuts by banks.
Congressmen and analysts are concerned about what would be the ultimate cost of the measure and its impact on the budget deficit, the outlook for the dollar and inflation.
Financial shares were poised to weigh on the market as they did heavily on Monday. Shares of Bank of America
"From what I'm seeing and hearing, Bernanke is basically putting pressure on Congress to do something right now," Matt McCall, president of Penn Financial Group in Ridgewood, New Jersey.
"I think it's probably just more of a ploy to put some pressure on Congress, but I don't think he should be speaking like that unless he felt that way because that's obviously going to put pressure on the stock market."
S&P 500 futures fell 5.40 points but were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures slipped 45 points and Nasdaq 100 futures declined 4.25 points.
A drop in oil prices might offer the broader market some support, with U.S. front-month crude down $2 at $107.33 a barrel.
Led by Treasury Secretary Henry Paulson, officials are working on a solution to mop up hundreds of billions of dollars worth of bad mortgage debt on the books of financial institutions.
Paulson, Bernanke, Securities and Exchange Commission Chairman Christopher Cox and James Lockhart, director of the Federal Housing Finance Agency, are due to testify before the Senate Banking Committee starting at 9:30 a.m. EDT.
(Editing by Kenneth Barry)