* President Obama to nominate Yellen as Fed chair Wed
* Alcoa rises, Yum falls after earnings
* Futures up: Dow 18 pts, S&P 2.8 pts, Nasdaq 5.75 pts
U.S. stocks were set for a modestly higher open on Wednesday, putting the S&P 500 on track to rebound from a big drop a day earlier, on expectations Janet Yellen will be tapped as the next chairman of the U.S. Federal Reserve.
U.S. President Barack Obama will nominate Fed number two Yellen on Wednesday. Investors expect her to tread carefully in winding down economic stimulus, and to provide continuity with the policies established under Fed Chairman Ben Bernanke, whose second term is due to expire on Jan. 31.
"The markets are finding consolation in Yellen's expected nomination because that at least puts the monetary policy on a more certain, or at least, a more familiar path," said Anastasia Amoroso, Global Market Strategist at J.P. Morgan Funds in New York.
"It does remove another hurdle, another piece of the puzzle, another piece of uncertainty that the market likes to see resolved."
The S&P 500 dropped 1.2 percent on Tuesday, its worst decline since Aug. 27, sending the benchmark index to its lowest level since Sept. 6 as traders cashed in gains in some of the year's best performers.
In Washington, Obama said he would not hold talks on ways to end the fiscal impasse while under threat from conservative Republicans, but agreed to discuss anything, including his healthcare plan, if they restore government funding and raise the debt limit.
"From a market perspective, obviously the longer the shutdown continues and the more it bleeds into the debt ceiling debate, the more the compelling the reason to sell becomes," said Amoroso.
The crisis in Washington threatens to damage the fiscal standing of the United States and to derail its fragile economic recovery.
S&P 500 futures rose 2.8 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 gained 18 points and Nasdaq 100 futures added 5.75 points.
Alcoa Inc climbed 3 percent to $8.18 in premarket trading after the aluminum producer reported better than expected earnings, as strength at the unit that sells auto parts and other complex items helped offset lower metal prices.
Costco Wholesale Corp slipped 1.4 percent before the opening bell after the retailer posted a 1 percent rise in quarterly profit and a 3 percent increase in its same-store sales for the month of September.
Yum! Brands Inc slumped 7 percent to $66.66 in premarket trading after the KFC parent warned it will take longer than expected for restaurant sales to rebound in China, which accounts for more than half the company's overall operating profit.
According to Thomson Reuters data, third-quarter earnings are expected to grow 4.3 percent, and revenue 3 percent.
Ariad Pharmaceuticals Inc shares plunged 63.7 percent to $6.23 in premarket trading after the company said the U.S. Food and Drug Administration had placed a partial hold on patient enrollment for trials of its cancer drug Iclusig.