US STOCKS-Futures up on Home Depot; housing starts on tap

* Home Depot Q2 profit tops expectation, outlook raised

* Housing starts, producer prices on tap

* Futures up: Dow 63 pts, S&P 500 5.8 pts, Nasdaq 9.75 pts

* For up-to-the-minute market news click [STXNEWS/US]

(Updates with context on S&P 500)

By Edward Krudy

NEW YORK, Aug 18 (Reuters) - U.S. stock index futures rose on Tuesday, rebounding from a steep drop the previous session, ahead of data expected to show housing starts rose to their highest level in eight months.

Home Depot Inc , the largest U.S. home improvement chain, reported better-than-expected quarterly profit, helped by cost cutting, sending its shares up 3.4 percent to $27.01 in premarket trades. A disappointing outlook from rival Lowe's Cos Inc the previous day helped push equities to their worst loss in seven weeks on Monday. (For details, see [ID:nBNG461582])

The housing data comes as investors seek hints that a nascent housing recovery continues to gather steam. Fixing the U.S. housing market, where the financial crisis originated, is seen as a key step in restoring the economy to health.

Economists forecast that housing starts increased to a seasonally adjusted annual rate of 600,000 units in July after rising to 582,000 units in June, according to a Reuters survey. It would be the third straight monthly increase.

Also at 8:30 a.m. (12:30 GMT), the U.S. Labor Department releases the producer price index for July, which is expected to register a decline of 0.3 percent after jumping twice as much as expected in June to 1.8 percent on rising energy prices.

"The real mover on the day will probably be housing starts. Any strong number there will obviously add to positive sentiment in the housing market that things are beginning to stabilize," said Peter Cardillo, chief market economist at Avalon Partners in New York.

"Everyone is singing to the same tune that the correction is finally here. I don't subscribe to that," Cardillo said. "I think what we've gone through over the past few days is a bit of a pullback from a very overbought situation."

S&P 500 futures rose 5.8 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 rose 63 points, and Nasdaq 100 futures added 9.75 points.

Drug wholesaler Cardinal Health Inc shares rose 1.9 percent to $34.00 in light premarket trade after the company beefed up its full-year guidance. For more, see [ID:nN18117286]

Investors will be looking for a repeat of that when the No. 2 U.S. retailer Target Corp reports quarterly results. Despite falling sales, the discount retailer has said that it has been able to protect margins by keeping down inventory.

The rise in futures mirrored a recovery in global indexes after a broad decline Monday. Japan's Nikkei <.N225> closed up 0.2 percent, while in Europe the pan-European FTSEurofirst 300 <.FTEU3> index of top shares rose 1 percent.

The broad based S&P 500 index has rallied nearly 50 percent since early March. The size of move has led many investors to expect a significant pullback heading out of the summer months.

After the market closes, Hewlett-Packard Co will report quarterly earnings that could jolt technology portfolios if there are signs of improved enterprise demand. (Reporting by Edward Krudy; Editing by Padraic Cassidy)