US STOCKS-Wall St set to open flat, slight progress made in Washington

* Obama shows flexibilty on short-term debt limit hike

* Talisman Energy (Toronto: TLM.TO - news) climbs on Icahn stake

* PHH exploring unit split - sources

* J.C. Penney jumps on turnaround update

* Futures up: Dow 9 pts, S&P 1.1 pts, Nasdaq up 4.5 pts

By Chuck Mikolajczak

NEW YORK, Oct (KOSDAQ: 039200.KQ - news) 8 (Reuters) - U.S. stocks were poised for a flat open on Tuesday on faint signs of progress 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.

"In this type of environment, pre-earnings season where it is headline driven by a market bludgeoned with continued sound bites about the shutdown, it's not a surprise to see markets make these smaller moves," said Sal Arnuk, co-manager of trading at Themis Trading in Chatham, New Jersey.

"What is really at stake is a tug of war going on because investors don't know if they want to avoid getting caught up in a crisis-driven selloff versus missing a resolution rally."

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 (NYSE: AA - news) 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 gained 1.1 points and were roughly even with 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 added 9 points and Nasdaq 100 futures added 4.5 points.

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.

J.C. Penney Co Inc jumped 6.4 percent to $8.20 in premarket trading after the struggling retailer reported a smaller decline in same-store sales for September compared with August and said it was seeing positive signs in many areas of its business.

U.S.-listed shares of Talisman Energy Inc climbed 6.5 percent to $13.58 before the opening bell after activist investor Carl Icahn said he had purchased about 61 million shares of the underperforming Canadian oil producer and may seek a seat on the company's board.