Wall Street set to fall as BOJ heightens stimulus worries

By Leah Schnurr

NEW YORK (Reuters) - Wall Street was set to tumble at the open on Tuesday after Japan did not offer new measures to calm its bond market, disappointing U.S. investors who are also trying to gauge the future direction of central bank policy at home.

The Bank of Japan kept monetary policy steady at the end of its two-day meeting, holding off on taking fresh steps to calm bond market volatility.

Japan in April announced a $1.4 trillion stimulus program, adding to central banks' efforts around the world to boost economic conditions.

The lack of further action rattled investors, underscoring worries about what will happen when the stimulus programs eventually go away. At the same time, nervousness remains over when the U.S. Federal Reserve may slow its measures, which have been a significant driver of this year's stock market rally.

"This market has been fed by extremely supportive government policies around the world," said Rick Meckler, president of investment firm LibertyView Capital Management in Jersey City, New Jersey.

"You're getting to that period where investors have to recognize that these polices are beginning to wrap up."

S&P 500 futures fell 17 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 dropped 123 points, and Nasdaq 100 futures lost 28 points.

The news also sent U.S. Treasury yields higher with the 30-year yield rising to a fresh 14-month high, according to Reuters data. The long bond last traded down 20/32 in price with a yield of 3.407 percent.

Shares of Lululemon Athletica slumped more than 14 percent in premarket trading after the company's chief executive said she will step down. The stock was down 14.8 percent at $70.14.

SoftBank Corp said it agreed with Sprint Nextel Corp to raise its offer for the U.S. wireless carrier to $21.6 billion from $20.1 billion. Sprint was up 2.8 percent at $7.38.

The S&P 500 is up more than 15 percent since the start of the year, but markets have been bumpier since comments from Fed Chairman Ben Bernanke last month sparked uncertainty over the central bank's timeline for slowing its $85 billion a month bond purchase program.

While the Bank of Japan left the door open to taking fresh steps to calm markets if borrowing costs spike again, it did not appear to assuage investors.

"The BOJ took some big steps and had some big changes but now that they've done that, the market is looking for even more," said Meckler.

Seasonality was also playing a part in Tuesday's weakness as equities tend to have less direction in the summer months, he said.

Dole Food jumped 24 percent to $12.65 after the company received an unsolicited buyout offer from its chief executive.

Catamaran Corp climbed after it signed a 10-year agreement with Cigna Corp . Catamaran rose 12.7 percent at $55.85.

Boeing raised its 20-year forecast for airplane demand, saying airlines will need 35,280 new jets worth $4.8 trillion as the world's fleet doubles.

Investors will also be watching a hearing by a German court on the legality of the European Central Bank's bond-buying program.

On the economic calendar, wholesale inventories data for April will be released at 10 a.m. (1400 GMT). Analysts expect inventories rose 0.2 percent in April.

(Editing by Kenneth Barry)