Libya uprising drags down markets

NEW YORK (CNNMoney) -- U.S. stocks were set for an early sell off Tuesday, as oil prices continued to skyrocket and overseas markets faltered on the escalating political crisis in Libya.

Dow Jones industrial average (INDU), S&P 500 (SPX) and Nasdaq (COMP) futures were pointing to sharp losses ahead of the opening bell. Futures measure current index values against perceived future performance.

U.S. markets were closed on Monday for the President's Day holiday. But oil prices surged more than 6%, as anti-government protests in the Middle East and Africa intensified -- raising worries about possible supply disruptions.

Oil prices rose another 7% Tuesday as the chaos in Libya entered an eighth day. The turmoil in North Africa and the Middle East has roiled world financial markets, with stocks plunging across Asia and markets in Europe under pressure.

In Tripoli, protesters have been demanding freedom and decrying high unemployment under Libyan leader Moammar Gadhafi's nearly 42-year-old regime. Gadhafi asserted Tuesday that he is still in control of the country, while witnesses and sources in the Libyan capital report a food shortage, gunfire and violence by security forces.

"All eyes are on Libya today," said Stephen Shork, publisher of the energy industry newsletter The Shork Report. "Unlike Egypt, Libya is a significant producer of crude and we may be seeing the largest disruptions since the start of the second Gulf War."

The political strife in Libya is part of a chain of uprisings that started this year in Tunisia and spread to Egypt, where protesters deposed Hosni Mubarak earlier this month.

Until Libya, the movement had not impacted a major exporter of crude, and investors are concerned that the unrest could disrupt the flow of oil from other key producing countries.

World markets: European stocks turned mixed. Britain's FTSE 100 fell 0.6%, France's CAC 40 dropped 1%. But the DAX in Germany edged up 0.1%.

Asian markets ended the session sharply lower. The Shanghai Composite plunged 2.6%, the Hang Seng in Hong Kong tumbled 2.1% and Japan's Nikkei sank 1.8%.

Late Monday, Moody's changed its outlook on Japan's bond rating to negative. The credit ratings agency cited difficulties facing the government and dimming prospects to stem the country's rising debt burden, according to reports.

Currencies and commodities: The dollar rose against the euro and the British pound, but fell versus the Japanese yen.

Oil for April delivery jumped $6.78 to $96.49 a barrel. Earlier Tuesday morning, oil prices spiked to $98.48 per barrel -- a 2 1/2 year high.

Brent crude, the benchmark oil contract in Europe, was up $4.83, or 4.5%, to $107.35 a barrel.

Gold futures for April delivery rose $15.20 to $1,404.10 an ounce.

Economy: Wall Street will get a gauge on the real estate market when Case-Shiller releases its home price index at 9 a.m. ET.

The Conference Board will release its February consumer confidence report at 10 a.m. ET. Economists expect it to rise slightly from January to 67.

Companies: A flurry of retail earnings are due before the market opens, giving investors a fresh read on the U.S. consumer's situation.

The world's largest retailer Wal-Mart (WMT, Fortune 500) said it earned of $1.41 per share in the fourth quarter, including tax benefits amounting to 7 cents per share. Analysts surveyed by Thomson Reuters were expecting earnings of $1.31 a share. Sales rose 2.5% to $115.6 billion in the quarter.

Wal-Mart's stock was down nearly 2% before the bell.

Shares of Home Depot (HD, Fortune 500) were up about 3% in premarket trading after the home improvement retailer reported quarterly earnings and sales that beat analysts' expectations.

Macy's (M, Fortune 500) also reported fourth-quarter earnings that were better than analysts' had expected.

Shares of Mentor Graphics (MENT) jumped 15% before the bell, after billionaire investor Carl Icahn offered to buy the company for $17 per share, according to a letter obtained by the Wall Street Journal. The stock closed Friday at $14.52 per share.

Chesapeake Energy (CHK, Fortune 500) was up 6% in premarket trading, after Australian resources giant BHP Billiton (BHP) announced plans to buy Chesapeake's shale assets in Arkansas for $4.75 billion.

Hewlett-Packard (HPQ, Fortune 500) will report its earnings after the closing bell.

Bonds: The price on the benchmark 10-year U.S. Treasury rose, pushing the yield down to 3.59% from 3.62% late Friday.

-- The CNN Wire Service contributed to this report.