* Divided government in Rome could hinder euro-zone reform
* S&P 500 coming off biggest daily drop since Nov. 7
* Home Depot profit and sales both top expectations
* Futures up: Dow 49 pts, S&P 2.6 pts, Nasdaq 3.25 pts
By Ryan Vlastelica
NEW YORK, Feb 26 (Reuters) - U.S. stock index futures edged higher on Tuesday, indicating equities would partially rebound from the previous session’s steep drop, though concerns persisted over the state of Italy’s economy and government makeup.
* In Italy’s election, groups opposed to economic reforms posted a strong showing, resulting in a political deadlock with a comedian’s protest party leading the poll and no group securing a clear majority in parliament.
* Major indexes plunged more than 1 percent on Monday, with the S&P 500 having its biggest daily drop since November as investors fretted that if Italy does not undertake reforms, that could once again destabilize the euro zone. The CBOE Volatility Index surged 34 percent in its biggest jump since Aug. 18, 2011.
* The rise in futures indicates that a recent trend of investors buying on dips will continue. Last week, concerns over whether the Federal Reserve might roll back its stimulus policy earlier than expected prompted a sharp two-day decline, though equities recovered most of ther lost ground by the end of the week. Weakness continued in Europe on Tuesday, with shares down 1.2 percent.
* Financial shares may be among the most volatile on Tuesday, as the group is closely tied to the pace of global economic growth. Morgan Stanley was one of the top percentage losers on the S&P on Monday, dropping more than 6 percent on concerns about the company’s exposure to European debt.
* Dow component Home Depot Inc will also be in focus after the home improvement retailer reported adjusted earnings and sales that beat expectations. Home Depot was up 1.3 percent to $64.75 in premarket trading.
* S&P 500 futures rose 2.6 points and were above 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 added 49 points and Nasdaq 100 futures rose 3.25 points.
* In the S&P, the 1,500 will be watched as a key level after the index closed below it on Monday for the first time since Feb. 4, with selling accelerating after falling below the level that had acted as support. An inability to break back above it could portend a weaker technical backdrop. The index remains 4.3 percent higher on the year.
* Gains this year have largely been driven by strong corporate earnings. With 83 percent of the S&P 500 having reported so far, 69 percent beat profit expectations, compared with a 62 percent average since 1994 and 65 percent over the past four quarters, according to Thomson Reuters data. Fourth-quarter S&P earnings are seen having risen 6 percent, above a 1.9 percent forecast at the start of the earnings season.
* Companies scheduled to report results on Tuesday include Macy’s Inc, Priceline.com and Tenet Healthcare . MetroPCS reported revenue that was slightly ahead of expectations earlier Tuesday.
* Cyclical shares, including financials and materials, have been among the strongest performers in 2013, lifted by signs of improved economic growth. That could leave the sectors vulnerable to a pullback as events in Italy progress. Goldman Sachs on Tuesday cut its 2013 gold price forecast to $1,600 an ounce from $1,810, citing an increase in U.S. real interest rates.
* While the political uncertainty from Italy may be the primary driver for markets, domestic government concerns will also be in focus. U.S. equities will face a test with the looming debate over so-called sequestration - U.S. government budget cuts that will take effect starting on Friday if lawmakers fail to reach an agreement over spending and taxes. The White House issued warnings about the harm the cuts are likely to inflict on the economy if enacted.