US STOCKS-Futures drop before last-ditch effort at 'cliff' deal
* Obama calls Democratic, Republican leaders to White House at 3 p.m.
* Chicago PMI, pending home sales data on tap
* Futures down: Dow 67 pts, S&P 8.5 pts, Nasdaq 12.5 pts
NEW YORK, Dec 28 (Reuters) - U.S. stock index futures fell on Friday as President Barack Obama and top lawmakers planned to make a last-ditch effort at budget talks to prevent the United States from going over the "fiscal cliff."
Obama and lawmakers will meet at the White House Friday afternoon for talks before a New Year's deadline to keep large tax hikes and spending cuts from taking effect and threatening the economy with recession.
Investors showed their skepticism about a deal coming in time as the benchmark S&P 500 index was on track for a fifth straight decline.
"Obviously all eyes will be on Washington and the headlines coming out of Washington will dictate today's market movement," said Peter Cardillo, chief market economist at Rockwell Global Capital in New York.
"You do have some economic data coming in, but the market is probably not going to pay much attention to that. The big thing is whether Washington will reach a deal by Monday."
U.S. stocks fell for a fourth straight session on Thursday but managed to to recover most of their earlier losses after the House of Representatives, in the barest sign of progress, said it would return to Washington on Sunday night to work on avoiding the cliff.
Highlighting market sensitivity to cliff headlines, on Thursday stocks fell more than 1 percent earlier after Senate Majority Leader Harry Reid warned a deal was unlikely before the deadline.
With many market partcipants away for the holiday-shortened week, volume is expected to remain light, which could exacerbate market swings.
S&P 500 futures fell 8.5 points and were below 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 lost 67 points, and Nasdaq 100 futures dropped 12.5 points.
Economic data expected on Friday includes Chicago PMI for December at 9:45 a.m. (1445 GMT) while the National Association of Realtors issues Pending Home Sales for November at 10 a.m. (1500 GMT). Economists in a Reuters survey forecast a reading of 51 for the main PMI index and a 1 percent rise in pending home sales.
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European shares drifted lower in thin trade on Friday, showing little faith among investors that new talks can avert at least some version of a New Year budget crunch in the United States.
The yen fell to its lowest level in more than two years, lifting Japanese stocks to 21-month highs on expectations of drastic monetary easing, while shares in the rest of Asia rose as Washington races to avoid a fiscal crisis.