Wall Street set to slide on banks and consumer gloom

NEW YORK (Reuters) - Stocks were set to slide at the open on Wednesday as fears of more credit losses in the banking sector and signs of further contraction in consumer spending compounded worries about fallout from the recession.

By Ellis Mnyandu

Bank stocks were set to be the top drags after Germany's Deutsche Bank posted a loss of about $6.4 billion for the last three months of 2008.

Even more unnerving to investors was a forecast by Morgan Stanley analysts that HSBC , Europe's biggest bank, is likely to halve its dividend and may need to raise up to $30 billion of capital.

The larger-than-expected fall in December U.S. retail sales underscored the mounting unease among consumers, beset with sliding home values, mounting job losses and dwindling savings. Consumer spending is a key pillar of corporate profits, and accounts for about two-thirds of U.S. economic activity.

"The banks are related to retail, they both suggest that the consumer is weak," said Subodh Kumar, chief investment strategist at Subodh Kumar & Associates in Toronto. "Bank problems are related to mortgages."

S&P 500 futures shed 17.50 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 declined 133 points, while Nasdaq 100 futures lost 21.75 points.

(Additional reporting by Ryan Vlastelica; Editing by James Dalgleish)