Futures point to firm Wall St, inflation in focus

LONDON, Feb 26 (Reuters) - U.S. stocks are expected to open up on Tuesday, with investors studying inflation data for clues on whether the Federal Reserve will continue to cut rates and company results for any signs of a slowdown hitting earnings.

At 1040 GMT, futures for the S&P 500 SPc1, the Dow Jones industrial average DJc1 were up 0.2 percent, while Nasdaq NDc1 futures were up 0.6 percent.

U.S. producer prices at 1330 GMT will be the key piece of macroeconomic data, a month after the Fed cut rates by 125 basis points in two tranches to prevent a recession.

Analysts said inflation -- fuelled by rising oil and commodity prices -- would decide whether the Fed's rate cutting would come to an abrupt end, even as economic growth slows.

"Central banks all over the world are more concerned about inflation than perhaps investors realise," said Commerzbank economist Peter Dixon, adding that inflation was more of a threat now than in earlier downturns because of commodity price rises driven by Asian demand.

But he said he expected the Fed would still cut rates next month.

"We expect a further 50 basis point cut in March and, depending on data thereafter, rates have the potential to fall as far as 2 percent," he said.

The federal funds rate is currently at 3 percent.

Stocks rallied on Monday on signs that the two largest bond insurers would stabilise. A person briefed on the matter said that any deal to rescue bond insurer Ambac Financial Group (ABK.N) would likely be signed early next week.

Standard & Poor's removed its threat to downgrade MBIA Inc's (MBI.N) AAA rating, soothing market fears of a cascade effect on banks, who hold debt insured against default by the bond insurers. Any downgrade in the insurers' ratings would affect the rating of the debt they insure. On Monday, the Dow Jones industrial average surged 1.5 percent, while the broad S&P 500 rose 1.4 percent and the tech-laden Nasdaq .IXIC rose 1.05 percent.

Major companies due to update on Tuesday include foods group HJ Heinz (HNZ.N), home improvement retailer Home Depot (HD.N) and Target Corp (TGT.N) and department store chain Macy's (M.N).

Dixon said while investors had focused on the impact of credit-related writedowns on company results, the hit from the resulting slowdown in the economy had yet to be understood.

"We remain fairly bearish on the outlook for U.S. equities, and by extension on European shares," he said. (Reporting by Sitaraman Shankar, editing by Will Waterman)