Checking out a rally

NEW YORK (CNNMoney.com) -- Retailing is the focus for investors Tuesday as two of the nation's top retailers reported results that worried markets, and a key reading of retail sales came in stronger than forecasts, while producer prices fell more than they were expected to.

Stock futures, which predict the direction of stocks at the open, surged after the economic reports.

Treasury prices jumped on the news, taking the yield on the 10-year note to 4.55 percent from 4.62 early Tuesday. The dollar was higher against the euro but lower against the yen.

U.S. producer prices took their biggest drop in over 13 years as energy and automobile prices declined substantially.

The PPI, which measures prices at the wholesale level, fell 1.6 percent. Analysts had expected a 0.5 percent decline on lower energy prices. The so-called core PPI, which strips out food and energy prices, came in 0.9 percent lower, after forecasts of a 0.1 percent increase. (Full story)

Retail sales fell 0.2 percent, less than expected. According to economists surveyed by Briefing.com, retail sales were forecast to post a 0.5 percent fall on weak auto sales.

Futures had been mixed earlier in the day following earnings from Wal-Mart Stores (Charts) and Home Depot (Charts).

No. 1 retailer Wal-Mart, a Dow component, reported a slightly better-than-forecast rise in fiscal third-quarter earnings, although it gave soft earnings guidance that was at or below the consensus forecast for the all-important fourth quarter, which includes the holiday shopping period.

Also reporting early Tuesday was home-improvement retail leader Home Depot, also a Dow component, which missed forecasts by 2 cents a share as it reported earnings that increased slightly. The company cited a "very challenging housing environment" for its problems.

No. 2 general retailer Target (Charts) and No. 1 office supply retailer Staples (Charts) are also reported results ahead of the open. Both reported improved results.

Also reporting results early Tuesday is D.R. Horton (Charts), the nation's No. 4 homebuilder, which reported a sharp drop in earnings in the slumping housing market.

Oil prices were slightly lower in early trading, the day ahead of the government report on U.S. fuel inventories. The U.S. crude futures contracts were down 11 cents at $58.47 a barrel, while Brent crude trading in London was 5 cents lower at $59.00.

In other corporate news, Microsoft (Charts) debuts its Zune portable music player Tuesday, its most direct challenge to the iPod from Apple Computer (Charts), the leader in the segment.

Ford Motor (Charts) is due to restate five years of results Tuesday in a previously announced move. Alan Mulally, the new CEO of Ford, will join with the heads of General Motors (Charts) and DaimlerChrysler's (Charts) Chrysler Group to meet with President Bush to discuss health care, trade and energy issues dogging the U.S. industry.

Stocks in Asia closed mostly higher in trading Tuesday, while stocks in Europe were mixed in early trading, with the stocks lower in Paris and up in London and Frankfurt.

More futures and market news ahead of U.S. open