May 17 (Bloomberg) -- U.S. stock-index futures fell after Federal Reserve Governor Donald Kohn said interest rates ``still need to rise'' to keep inflation contained. Hewlett-Packard Co. and Home Depot Inc. shares slipped in Europe in advance of quarterly results from the companies.

A government report today may show wholesale prices rose a slower pace in April.

``The Fed is still talking about higher interest rates,'' said fund manager Ian Sharman, who manages $700 million invested in U.S. stocks at Royal London Asset Management in London. ``If you get a nasty spike in those inflation numbers today, you're probably going to see those futures come off a bit more aggressively, and I'd expect the market to pull back.''

Standard & Poor's 500 Index futures expiring in June lost 3.6 to 1163.50 as of 9:32 a.m. in London. Dow Jones Industrial Average futures decreased 29 to 10,223 and Nasdaq-100 Index futures slid 5 to 1476.5. Sixteen of the 21 Dow average stocks trading in Europe declined.

U.S. stocks rose yesterday as oil prices held below $49 a barrel and a weaker-than-expected report on New York manufacturing eased concern that the Fed will step up the pace of interest-rate increases.

Hewlett-Packard, the world's largest printer manufacturer, fell 21 cents to $20.80 in Germany. Analysts on average said second-quarter profit rose to $1.06 billion, or 36 cents a share, from $1.03 billion, or 34 cents, based on a survey of 25 estimates by Thomson Financial. The report is expected after the end of regular U.S. trading.

Home Depot, the biggest home-improvement chain, dropped 21 cents to $37.15.

Deere, Kohn

Other S&P 500 companies reporting earnings today include J.C. Penney Co., the No. 2 U.S. department-store company, and Deere & Co., the world's largest maker of farm equipment. Neither share traded in Europe.

Fed policy makers will raise rates ``at a measured pace,'' Kohn said in a speech via videoconference from Washington. He is a voting member of the Fed's Open Market Committee, which raised the benchmark overnight lending rate between banks, or federal funds rate, a quarter percentage point to 3 percent at its May 3 meeting.

The producer price index, a measure of what factories, farms and other suppliers are paid for their goods, may rise 0.4 percent, according to the median estimate of 70 economists polled by Bloomberg News. The index rose 0.7 percent in March.

`Wait and See'

The S&P 500 yesterday increased or 1 percent to 1165.69. The Dow average climbed 1.1 percent to 10,252.29. The Nasdaq Composite Index 0.9 percent to 1994.43 for its highest close since April 12. Crude oil today was little changed near a three- month low of $47.60 a barrel in New York.

``Investors are still in wait-and-see mode,'' said Sharman, who has been buying technology stocks including Cisco Systems Inc. and Motorola Inc. in recent days. ``The real key is when the Fed stops raising rates. That's when this market can finally break out to the upside.''

Agilent Technologies Inc., the world's biggest maker of scientific testing equipment, sank 98 cents to $20.58. Agilent said second-quarter net income fell to 10 percent to 19 cents a share, amid declining sales in the semiconductor division.

American International Group Inc., the insurer under investigation for improper accounting, was sued by the San Francisco Employees' Retirement System over claims that fraud led to the pension fund's losses on AIG shares. The stock didn't trade in Europe.

Overnite, Emmis

Overnite Corp. may slide after analysts at JPMorgan Chase & Co. cut their rating on the stock to ``neutral'' from ``overweight.'' Shares of the trucking company didn't trade in Europe.

Emmis Communications Corp. may decline. The radio broadcaster said it received a subpoena from New York Attorney General Eliot Spitzer about a contest at one of its New York stations. Emmis said it's cooperating with the investigation and doesn't expect it will have a material effect on its financial position or results. The shares didn't trade in Europe.

Industrial production last month rose 0.2 percent, half last year's average monthly increase, a separate Fed report is expected to show.

The Labor Department is scheduled to release the wholesale price report at 8:30 a.m. in Washington. At the same time, the Commerce Department may say housing construction rebounded in April, spurred by low interest rates and more hiring.

The production report will follow at 9:15 a.m.

To contact the reporter on this story: Gregory Ruben in Milan at gruben@bloomberg.net.

Last Updated: May 17, 2005 04:38 EDT