* Futures up: Dow 267 pts, S&P 26.5 pts, Nasdaq 62.5 pts
By Sruthi Shankar
Feb 12 (Reuters) - U.S. stock index futures were up more than 1 percent, attempting a rebound from Wall Street's worst week in two years, while volatility remained relatively elevated and U.S. bond yields hit new four-year highs.
By 6:50 a.m. ET (1150 GMT), Dow e-minis were up 267 points, S&P 500 e-minis were up 26.5 points and Nasdaq 100 e-minis were up 62.5 points.
The benchmark S&P 500 index closed up 1.5 percent on Friday, but still ended the week nearly 9 percent below its all-time high set just two weeks ago as investors fretted that the specter of rising inflation would warrant increasing interest rates at a faster-than-expected pace.
Wall Street's fear gauge, VIX, short for the CBOE Volatility index opened at 27.25, down from Friday's close of 29.06, but double its 50-day moving average. U.S. 10-year Treasury yields hit new four-year high at 2.902.
While U.S. stocks, along with global markets, attempt to bounce back, any recovery hinges on their ability to withstand another sharp move up in bond yields - something that will be put to the test by two important readings on U.S. inflation this week.
If the January's U.S. consumer price index due Wednesday from the U.S. Labor Department, and the producer price index the next day, come in higher than the market anticipates, that could spur further gyrations in stocks.
U.S. consumer prices rose 2.1 percent year-on-year in December and is forecast to stay around that pace this month.
President Donald Trump will unveil his second budget on Monday afternoon – seeking to make good on his promise to bolster military spending and requesting funds for infrastructure, construction of a wall along the border with Mexico and opioid treatment programs.
The infrastructure and tax plans have been the key drivers of the so-called Trump rally – the U.S. market's relentless gains since Trump's election. The latest budget plan will include $200 billion for infrastructure spending and more than $23 billion for border security and immigration enforcement.
Equities for years have looked relatively attractive compared to the low yields offered by bonds, but the rise in Treasury yields has diminished the allure of stocks, especially with stock valuations at historically expensive levels.
That, along with a reversal of bets on low volatility drew the three major Wall Street indexes to correction territory last week, measured by a 10 percent decline from their record highs hit on Jan. 26.
Since that high, the S&P 500 lost $2.49 trillion in market value through last Thursday, according to S&P Dow Jones Indices.
Among stocks, shares of CSRA soared 32 percent in premarket trading after General Dynamics said it would buy the government IT contractor for about $6.8 billion.
Cisco was up more than 2 percent after brokerage Instinet upgraded the stock to "buy" ahead of the network gear maker's results later this week. (Reporting by Sruthi Shankar in Bengaluru; Editing by Savio D'Souza)