US STOCKS-Futures flat as Washington deadlock drags on

* Earnings season to begin with Alcoa (NYSE: AA - news) reporting after market close

* Amazon.com (NasdaqGS: AMZN - news) wins court ruling in CIA (Milan: CIA.MI - news) contract dispute

* PHH exploring unit split - sources

* J.C. Penney jumps on turnaround update

* Futures: Dow flat, S&P off 0.1 pt, Nasdaq up 1 pt

By Chuck Mikolajczak

NEW YORK, Oct (KOSDAQ: 039200.KQ - news) 8 (Reuters) - U.S. stock index futures were little changed on Tuesday as signs of small progress appeared to resolve the fiscal standoff in Washington, although an agreement still remained elusive.

With the partial U.S. government shutdown in its second week and only nine days left for Congress to raise the U.S. debt ceiling, President Barack Obama said he would accept a short-term increase to avoid a default.

A Senate aide said Republican Senator Rob Portman, who is influential on budget matters, floated a plan to cut federal spending and reform the U.S. tax code as part of a broader deal to reopen shuttered government agencies and raise the debt ceiling.

"There is no question that anxiety is building within the marketplace over the impasse and the fear that perhaps the unthinkable might happen," said Peter Cardillo, chief market economist at Rockwell Global Capital in New York.

"The underlying tone of the market suggests uneasiness is increasing, but certainly not to the point where the panic button is likely to be pushed."

The shutdown has led to a dearth of economic data releases, leaving investors to focus on the earnings-reporting season. However, earnings are more likely to affect individual companies than drive marketwide moves.

After Tuesday's market close, former Dow component Alcoa Inc will report earnings as will KFC parent company Yum! Brands Inc.

The longer the government shutdown continues, the greater the damage to the economy, according to analysts, increasing the probability the Federal Reserve will leave its stimulus measures in place.

S&P 500 futures lost 0.1 point 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. Dow Jones (DJI: ^DJI - news) industrial average futures were flat and Nasdaq 100 futures added 1 point.

PHH Corp is exploring splitting up its mortgage and auto fleet leasing businesses and selling each of the units, three people familiar with the situation told Reuters on Monday.

A U.S. court ruled in favor of Amazon.com Inc, which is locked in a dispute with International Business Machines over a $600 million cloud computing contract awarded by the Central Intelligence Agency, a court notice showed.

J.C. Penney Co Inc jumped 8.6 percent to $8.37 in premarket trading after the struggling retailer said its September comparable store sales continue to improve and that it is making solid progress in its turnaround.

European shares fell on Tuesday, with medical technology group Getinge (Other OTC: GNGBF - news) slumping after a profit warning, as the United States' budget stalemate weighed on stock markets.

Asian shares rose as data showed China's services industry continued to expand, soothing nerves jarred by fears of a U.S. debt default.