Stock futures were sharply lower on Friday, dropping more than 1 percent, after a Republican proposal for averting the "fiscal cliff" failed to pass, further eroding hopes that a deal would be reached quickly.

Trading is expected to be volatile as investors view a fiscal agreement between the White House and Republicans before the year-end as increasingly unlikely. With trading thin ahead of the holidays, market swings will probably be amplified. CBOE VIX front-month futures, a measure of volatility, rose 5.7 percent.

Late on Thursday, Republican House Speaker John Boehner conceded there were insufficient votes from his party to pass a tax bill, dubbed "Plan B," to help avert the cliff, a combination of tax hikes and spending cuts that could tip the economy into recession if they take effect next year.

Boehner said he would hold a press conference at 10:00 a.m. ET (1500 GMT), during which he is expected to discuss the vote.

Plan B had called for tax increases on those who earn $1 million a more a year, a far smaller slice of taxpayers than President Barack Obama had asked for.

The bill's failure suggested it would be difficult to get Republican support for the more expansive tax increases Obama has urged, making it less likely an agreement will be reached before the end of the year.

"This calls Boehner's leadership into question as well as the government's ability to compromise on a deal. There's now little chance anything will happen before the end of the year," said Robert Pavlik, chief market strategist at Banyan Partners LLC in New York.

"This will lead to weakness throughout the day, and things could get very bad with so many people out for the holidays."

Investors had previously considered such an outcome unlikely. The decline implied by futures on Friday would wipe out most of the week's equity gains, which buoyed the S&P 500 close to two-month highs.

Banking and energy shares, which outperform in times of economic expansion and have led the market on signs of progress with the fiscal impasse, could be the most vulnerable to any setback. February crude futures dropped 1.3 percent in early trading on Friday.

S&P 500 futures sank 19 points, or 1.3 percent, 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 lost 184 points and Nasdaq 100 futures slid 36.5 points.

The S&P 500 is up about 1.8 percent this week, boosted by signs of progress in the fiscal negotiations between Obama and Boehner earlier in the week.

So far in 2012, the index has gained 14.8 percent, though uncertainty over the cliff may prompt many traders to lock in gains as the year draws to a close.

November durable goods data is scheduled for release at 8:30 a.m. ET (1330 GMT), along with personal income and spending data. The Thomson Reuters/University of Michigan's final December consumer sentiment survey is due at 9:55 a.m.

Durable goods are seen rising 0.2 percent while the main index in the consumer sentiment survey is seen at 74.7, compared with a prior read of 74.5. Both income and spending are seen rising 0.3 percent.

With budget worries at the forefront, investors are likely to shrug off Friday's data, as they did on Thursday, when strong economic growth and home sales figures failed to excite them.

"All other news will take a third-row seat to the negotiations as investors deal with the game of 'chicken' being played in Washington," Pavlik said.

Nike Inc rose 3.5 percent to $102.50 in premarket trading, after reporting second-quarter earnings that handily beat expectations Thursday on strong demand in North America. Software distributor Red Hat Inc posted third-quarter revenue that beat expectations.

U.S.-listed shares of Research in Motion slumped 14 percent to $12.20 in premarket trading. The company reported its first-ever decline in its subscriber numbers Thursday and outlined plans to transform the way it charges for its BlackBerry services.

(Editing by Bernadette Baum)