Wall Street set to start higher on German data; Fed eyed

Wall Street was poised to open higher on Tuesday after unexpectedly cheery data out of Europe and as the Federal Reserve was set to kick off its two-day policy meeting.

The U.S. stock market has entered a traditionally quiet period heading into the end of the year, with thinner trading volumes and fewer large fluctuations likely.

Though the pace of talks in Washington to avert impending U.S. tax hikes and spending cuts quickened, senior politicians on both sides cautioned that an agreement on all the outstanding issues remained uncertain.

The lack of progress in negotiations about the "fiscal cliff" has kept investors from making aggressive bets in recent weeks, though most expect a deal will eventually be reached.

In Germany, analyst and investor sentiment rose sharply in December, entering positive territory for the first time since May, a leading survey showed. The data helped drive European shares higher.

"We've been getting a lot of the beginning of our day from seeing what Europe has been doing and I think that's going to hold true today," said Kim Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh.

The Fed will begin its policy-setting meeting on Tuesday. The central bank is expected to announce a new round of Treasury securities purchases when the meeting ends on Wednesday, according to a Reuters poll. The program would replace its "Operation Twist" stimulus which expires at the end of the year.

S&P 500 futures rose 3.8 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 gained 28 points, and Nasdaq 100 futures added 11.5 points.

The U.S. Treasury is selling its remaining stake in insurer American International Group Inc , bringing an end to government ownership of the company about four years after a $182 billion bailout. AIG's shares were up 1.4 percent at $33.83 in premarket trade.

Two firms raised their price targets for Urban Outfitters Inc , sending the retailer's shares up 6 percent at $39.20.

Texas Instruments Inc slightly improved its profit target late on Monday, excluding a massive restructuring charge, as the company cuts costs.

Also in the tech sector, Intel Corp said it is on track to launch a new generation of chips for smartphones and tablets as it rushes to catch up with the competition.

Delta Air Lines said it had bought a 49 percent stake in Britain's Virgin Atlantic for $360 million and the two firms agreed on a joint venture.

The U.S. trade deficit widened in October with the biggest drop in exports in nearly four years, data showed. A report on wholesale inventories is due at 10 a.m. (1500 GMT).

(Editing by Kenneth Barry)