US STOCKS-Futures plunge on US recession fears

(Updates prices, adds details)

By Kristina Cooke

NEW YORK, Jan 21 (Reuters) - U.S. stock index futures sank in holiday-shortened trading on Monday as fear of a U.S. recession gripped investors, indicating Wall Street was likely to join a global equity markets plunge that may usher in a bear market when trading resumes on Tuesday.

While cash equity markets were shut for the Martin Luther King Jr. Day holiday, index futures were very active in electronic trading through the Chicago Mercantile Exchange. U.S. stock markets reopen Tuesday morning.

The sell-off in futures tracked losses in global equities, as the MSCI's main index of world stocks hit its lowest level in over a year. World stocks nose-dived as investors worried a deteriorating U.S. economy would drag others down with it. The pan-European FTSEurofirst 300 .FTEU3 was down 4.2 percent, and Japan's benchmark Nikkei average .N225 earlier lost 3.86 percent to close at a two-year low.

If U.S. stocks open on Tuesday at the levels futures are currently indicating, it would push major indexes dangerously close to bear market territory -- or a 20 percent drop from their peak in October. That would mark the death of the bull market that was born in early October 2002.

The drop in futures follows the worst week for the S&P 500 in five years. On Friday, stocks fell for a fourth day, on worry that a White House effort to boost the economy may not prevent a recession.

President George W. Bush on Friday called for a package worth up to $150 billion in tax cuts and other measures to shore up the economy, but investors said the plan did not go far enough.

"What we are seeing today are more signs that the shock waves from the U.S. are still expanding throughout the world, and we are still in the eye of the storm as far as credit issues are concerned," said Subodh Kumar, chief investment strategist at Subodh Kumar & Associates in Toronto.

Dow Jones industrial average futures DJc1 dropped 546 points or 4.5 percent. Should the Dow close lower on Tuesday by the amount the futures suggest, it would rank as the fourth largest point loss ever for the blue chip index.

S&P 500 futures SPc1 were down 62.5 points, or a 4.7 percent drop, far below fair value, a mathematical formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Nasdaq 100 NDc1 futures slid 77.5 points, or 4.2 percent.

The Standard & Poor's 500 index closed on Friday down 15.33 percent from its peak close on Oct. 9. A fall into bear market territory for the S&P 500 would mean the end of the second longest bull market for the benchmark index since 1929, according to the Stock Trader's Almanac.

One major stock index, the Russell 2000 index .RUT of small-cap stocks, fell into bear market territory last week. (Reporting by Kristina Cooke; Editing by John Picinich)