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Wall Street headed lower with Italy at crisis point

U.S. stock index futures tumbled Wednesday as a spike in Italian bond yields fueled fears the country will need a bailout, ratcheting up the region's debt crisis to another level.

Italian borrowing costs reached a breaking point, hitting 7.5 percent as Prime Minister Silvio Berlusconi's promise to resign failed to raise optimism about the country's ability to deliver on long-promised economic reforms.

Italy has replaced Greece at the center of the euro zone debt crisis and is teetering on the cusp of requiring a bailout that many say Europe cannot afford to give.

Portugal and Ireland were forced to seek bailouts when their borrowing costs reached similar levels.

"You are dealing with a pretty substantial economy, you are not dealing with a Greek economy, you are dealing with something that is far more significant," said Barry Ritholtz, chief market strategist at Fusion IQ in New York.

"I don't think Italy can just walk away, they can't simply default whereas Greece can, because if they do that is the end of the euro."

By midday, European stocks were lower by 2 percent after an early rally that had been ignited by Berlusconi's announcement to step down.

Adding to worries about the region, a plan for a former European Central Bank official to lead a Greek coalition government ran into trouble, sources said, as the nation sought to head off a feared bankruptcy.

S&P 500 futures slumped 27.6 points and were well below fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration of the contract. Dow Jones industrial average futures lost 213 points while Nasdaq 100 futures dropped 46.75 points.

Adobe Systems Inc fell nearly 10 percent to $27.50 in premarket trade after the software maker said it plans to lay off more than 7 percent of its workforce.

General Motors Co slid 3.8 percent to $24.08 after the automaker said it expects to miss its target for the year to break even in Europe due to deteriorating conditions in the region.

After the closing bell, Cisco Systems Inc, the maker of Internet networking gear, will report quarterly results. Shares were off 1.4 percent to $18.05 premarket.

On the economic front, the Commerce Department releases wholesale inventories for September at 10 a.m. EST . Economists forecast inventories to rise 0.5 percent versus a 0.4 percent increase in August.

Federal Reserve Chairman Ben Bernanke will speak at a small business and entrepreneurship conference at 9:30 a.m. EST.