* Home Depot Q2 profit tops expectation, outlook raised
* Housing starts, permits fall unexpectedly in July
* Target profit tops consensus, boosting shares
* Futures up: Dow 25 pts, S&P 500 2.3 pts, Nasdaq 6.75 pts
(Updates with housing data)
By Edward Krudy
NEW YORK, Aug 18 (Reuters) - U.S. stock indexes pointed to a flat to slightly higher open on Tuesday after a surprise drop in housing starts offset better-than-expected results from retailers Home Depot Inc and Target Corp .
New U.S. housing starts and permits unexpectedly fell in July, pulled down by steeper declines in multifamily units, a government report showed on Tuesday.
But better-than-expected quarterly results for the two important retailers were enough to keep futures afloat.
Shares in Home Depot, the largest U.S. home improvement chain, rose 3.4 percent to $26.95 in premarket trades as it beat estimates and raised its outlook, while shares in the No.2 U.S. retailer, Target, rose 5.3 percent to $43.40 as its profit came in better than Wall Street's consensus forecast.
"I believe equities are in correction and will remain that way," said Subodh Kumar, chief investment strategist at Subodh Kumar & Associates in Toronto. "The market will focus on retail sales and consumer company earnings rather than economic data."
S&P 500 futures rose 2.3 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 rose 25 points, and Nasdaq 100 futures added 6.75 points.