U.S. stock futures point to higher open, all eyes on Fed

* Fed meeting in view, investors seek stimulus clarity

By Ryan Vlastelica

NEW YORK (Reuters) - U.S. stock index futures pointed to a higher open on Monday, as large deals boosted optimism after a steep decline last week, though investors remained heavily focused on an upcoming Federal Reserve policy meeting.

Equities are coming off their worst week in nearly four months, a pullback that came on concerns the Fed may begin a stimulus wind-down at its two-day policy-setting meeting that ends Wednesday. The stimulus has been a major contributor to the market's gains this year, and has been expected to keep a floor under stock prices for as long as it continues.

 

Investors have been trying to gauge the timing of when the central bank will start winding down its market-friendly bond purchases, with many market participants expecting the Fed to announce a tapering in March.

However, stronger economic data of late, including the November payroll report, has led some to believe the tapering could come earlier, as soon as at the Fed's meeting this week. The Fed has said it will slow the program when certain economic indicators meet its growth targets.

"The market's direction has been biased towards the upside, and there's some relief from last week's selling pressure," said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia.

"I was expecting hesitation going into the Fed, but I think most accept that while it is possible we'll see some kind of change in policy, it is unlikely."

Avago Technologies Ltd agreed to buy LSI Corp for $6.6 billion, while American International Group Inc said it would sell its aircraft-leasing business to AerCap Holdings NV in a deal valued at about $5.4 billion.

AerCap shares surged 32 percent to $33.01 in premarket trading while AIG rose 2.3 percent to $50.86.

S&P 500 futures rose 9.1 points and 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 added 93 points and Nasdaq 100 futures rose 14.75 points.

The S&P 500 <.SPX> fell below its 14-day moving average on Wednesday and has not closed above it since, a sign of weak near-term momentum. However, the benchmark index is less than 2 percent above its record closing high, indicating that recent selling has not been panic-driven.

In other company news, a source close to the matter told Reuters that Charter Communications Inc was preparing to send an offer letter to acquire Time Warner Cable Inc for less than $135 a share. Time Warner closed Friday at $131.40.

Twitter Inc fell 1.2 percent in premarket trading after both Wells Fargo and Suntrust downgraded the social media stock.

Procter & Gamble plans to reorganize its overseas business as part of Chief Executive A.G. Lafley's plans to cut costs, according to a Bloomberg report that cited three unidentified people briefed on the matter.

Wall Street closed flat on Friday, but all three major indexes fell more than 1.5 percent last week, the largest weekly percentage drop since August.

The New York Federal Reserve said on Monday its "Empire State" manufacturing activity index rose in December to 0.98 from -2.21 in November. Economists in a Reuters survey had expected a reading of 4.75.

Overseas, European shares <.FTEU3> rose 0.9 percent after Markit's Flash Eurozone Composite Purchasing Managers' Index ended 2013 at its highest level of the year.

(Editing by Bernadette Baum)