Stocks set for rough start

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NEW YORK (CNNMoney.com) -- Stocks were poised for a tough start Tuesday as deepening worries about the financial sector and the dismal housing market balanced a further drop in oil prices.

One half-hour before the start of trading, Nasdaq and S&P futures were lower, with a comparison to fair value suggesting a flat open for Wall Street.

Stocks sank Monday after renewed fears about mortgage finance giants Fannie Mae and Freddie Mac rattled investors. Overseas markets followed Wall Street lower, with Asian and European indexes both falling sharply Tuesday.

Housing: Housing starts hit a 17-year low for July, totaling 965,000 for the month. That beat consensus expectations of 960,000, but was much lower than the prior month's tally of 1,084,000. The Commerce Department reported that building permits totaled 937,000 in July, missing consensus expectations of 959,000, and coming in well below the prior month's total of 1,138,000.

This report comes a day after the National Association of Homebuilders said that confidence among builders remained at a record low in August.

Inflation: The government's Price Producer Index, which tracks inflation in wholesale goods, rose 0.6% in July, which is what analysts expected. It's one-third of the inflation rate for the prior month. The core PPI, which does not include volatile food and energy prices, edged up 0.2%, matching analyst expectations, as well as the prior month's price increase.

Financials: Investors will focus on Fannie (FNM, Fortune 500) and Freddie (FRE, Fortune 500) after the shares of both firms sank to their lowest levels in nearly two decades Monday.

The sharp drop, which raised credit jitters, was triggered by a report in Barron's that suggested a government takeover of the troubled companies is inevitable.

Lehman: The spotlight is also on Lehman amid reports that the Wall Street firm may sell part of its investment-management business, which includes Neuberger Berman.

The New York Times and Wall Street Journal both reported that Lehman (LEH, Fortune 500) is mulling a sale in order to shore up its capital base amid heavy mortgage-related losses.

Oil: Crude futures extended their fall after Tropical Storm Fay avoided oil production facilities in the Gulf Coast.

U.S. crude for September delivery lost 71 cents to $112.16 a barrel in electronic trading.

Home Depot: The world's largest home improvement retailer reported a 24% drop in second-quarter profit.

Home Depot (HD, Fortune 500) said earnings fell to $1.2 billion, or 71 cents a share, in the second quarter, from $1.59 billion, or 81 cents a share, in the year-ago quarter.

General Dynamics: Aircraft builder General Dynamics (GD, Fortune 500) has entered an agreement with Jet Aviation to buy the smaller Swiss company for $2.25 billion in cash. The deal is expected to close by the end of 2008.

Earnings: Retailer Target (TGT, Fortune 500) reported a nearly 8% decline in profit for the second quarter, but still beat analyst expectations.

Earnings fell to $634 million, or 82 cents per share, compared to the year-ago profit of $686 million, or 81 cents per share.

Hewlett-Packard (HPQ, Fortune 500) issues its results after the market close.

Other markets: Wall Street's woes spread to global markets. Stocks in Asia ended sharply lower, with Japan's benchmark Nikkei index down 2.3%. European shares sank in early trading.