* Initial claims rise, CPI flat
* Wal-Mart shares volatile after earnings
* Futures off: Dow 11 pts, S&P 2.1 pts, Nasdaq 8.25 pts
By Chuck Mikolajczak
NEW YORK, Feb 21 (Reuters) - U.S. stocks were set to dip at the open on Thursday, indicating the S&P 500 would extend declines after its biggest percentage drop in three months a day earlier, as data continued to show a slowly improving economy.
The number of Americans filing new claims for unemployment benefits rose 20,000 to a seasonally adjusted 362,000, above expectations for 355,000, but still at levels consistent with a steady improvement in labor market conditions.
Consumer prices were flat for a second straight month in January, providing scope for the Federal Reserve to maintain its very accommodative monetary policy stance as it tries to stimulate the sluggish economy. Excluding food and energy, consumer prices rose 0.3 percent, the largest gain since May 2011.
The S&P 500 index dropped 1.2 percent on Wednesday, its biggest decline since Nov. 14, after minutes from the U.S. Federal Reserve's most recent meeting suggested the central bank may slow or stop buying bonds sooner than expected.
The Fed has used quantitative easing, or QE, since 2008 in a bid to stimulate the economy. The policy, which involves expanding the Fed's balance sheet to buy bonds, has been credited with pushing money into the stock market, and its withdrawal would remove a ballast for the markets.
With the benchmark S&P index still up 6 percent for the year, many analysts see the Fed minutes as a trigger for an overdue pullback in equities, along with the upcoming sequestration in Washington and a decrease in consumer spending.
The sequestration - automatic across-the-board spending cuts put in place as part of a larger congressional budget fight - are due to kick in March 1 unless lawmakers agree on an alternative.
"It's the sequester, it's the knee-jerk reaction to yesterday's Fed minutes and it's the realization the consumer is slowing," said Phil Orlando, chief equity market strategist, at Federated Investors, in New York.
"I'd love to see a healthy 5 percent correction; let's wash out some of the weak hands and set up for a better move during the year."
Financial data firm Markit said its "flash," or preliminary U.S. Manufacturing Purchasing Managers Index slowed to 55.2 this month from 55.8, which had been the best showing since April, 2012.
Wal-Mart Stores Inc rose 1.4 percent to $70.20 in choppy premarket trading after the world's largest retailer reported a larger-than-expected rise in quarterly profit and raised its dividend payout. Investors weighed the news of better profit against persisting weakness in U.S. sales as consumers held back spending as they absorbed higher payroll taxes and gasoline prices.
S&P 500 futures fell 2.1 points and were below 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 lost 11 points, and Nasdaq 100 futures dropped 8.25 points.
VeriFone Systems Inc tumbled 34 percent to $21.05 in premarket trading after the credit card swipe-machine maker forecast first and second-quarter profit that were well below analysts' expectations.
Berry Petroleum Co jumped 22.6 percent to $47.31 in premarket trading after oil and gas producer Linn Energy LLC said it would buy the company in an all-stock deal valued at $4.3 billion including debt.
Later in the session at 10:00 a.m. (1500 GMT), the National Association of Realtors releases existing home sales for January. Estimates forecast a 4.90 million annualized unit total in January versus 4.94 million annualized units in December.
Also at 10:00 a.m., the Conference Board releases its report on January leading economic indicators. Economists in a Reuters survey forecast a 0.3 percent rise compared with a 0.5 percent increase in December.
According to Thomson Reuters data through Wednesday morning, of the 405 companies in the S&P 500 that have reported results, 71 percent have exceeded analysts' expectations, compared with a 62 percent average since 1994 and 65 percent over the past four quarters.
Fourth-quarter earnings for S&P 500 companies are estimated to have risen 5.7 percent, according to the data, above a 1.9 percent forecast at the start of the earnings season.