(Updates to show futures turning negative)

NEW YORK, Aug 26 (Reuters) - U.S. stock index futures turned lower on Tuesday, with Wall Street now looking set to add to Monday's drop, as the price of oil cut its earlier losses.

Oil, which had earlier fallen more than $2 a barrel, was down just 50 cents.

Credit and economic concerns that had driven stocks steeply lower on Monday remained, analysts said.

World stocks hit their lowest level in nearly two years, as a worsening German business mood and fresh concerns about financial firms triggered a sell-off in risky assets.

Investors will get more clues on how long the U.S. housing slump could last, with three separate reports on housing on tap, most notably new-home sales data at 10 a.m. (1400 GMT). Consumer confidence data is also due at 10 a.m.

"The rally in futures was muted to begin with," said Tim Smalls, head of U.S. stock trading at brokerage firm Execution LLC in Greenwich, Connecticut.

"There is continued weakness in Europe and Asia, and the concerns from yesterday are still here -- so I think the trend is lower."

S&P 500 futures SPc1 fell 1.70 points and were slightly below fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract.