* U.S. considering talks with Iran over Iraq
* Medtronic to buy Covidien for $42.9 bln
* Futures down: Dow 41 pts, S&P 5 pts, Nasdaq 8.75 pts
By Chuck Mikolajczak
NEW YORK, June 16 (Reuters) - U.S. stock index futures declined on Monday, on the heels of the S&P's biggest weekly drop since early April, as turmoil in Iraq sparked investor caution.
* The United States is contemplating talks with its arch enemy Iran to support the Iraqi government in its battle with Sunni Islamist insurgents who routed Baghdad's army and seized the north of the country over the past week.
* Geopolitical tensions in Ukraine also flared as Russian natural gas exporter Gazprom reduced supplies to Ukraine on Monday after Kiev failed to meet a deadline to pay off its gas debts in a dispute that could disrupt supplies to the rest of Europe.
* Economic data expected on Monday include the Empire State manufacturing survey for June at 8:30 a.m. (1230 GMT). Expectations call for a reading of 15 versus the prior reading of 19.01.
* At 9:15 a.m. (1315 GMT), industrial production data for May is due and the NAHB housing market index is set to be released at 10:00 a.m. (1400 GMT). Industrial production is expected to show an increase of 0.5 percent against the 0.6 percent decline in the prior month. The housing market index is expected to climb to 47 from a prior 45.
* S&P 500 e-mini futures were down 5 points and fair value - a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract - indicated a lower open. Dow Jones industrial average e-mini futures fell 41 points and Nasdaq 100 e-mini futures lost 8.75 points.
* Merger activity continued to be active. Medical device maker Medtronic Inc agreed to buy Dublin-based Covidien Plc for $42.9 billion and shift its executive headquarters to Ireland in the latest move by U.S. firms to harvest lower tax rates abroad. Medtronic shares gained 11.9 percent to $67.90 in premarket trade while Covidien jumped 35 percent to $97.20.
* Williams Companies climbed 12.4 percent to $53.03 before the opening bell. The pipeline operator said it agreed to acquire control of Access Midstream Partners LP for $5.99 billion as the first step toward merging it with its operations. Jefferies subsequently upgrade Williams to a "buy" rating.
* European stocks slipped in early trading and most Asian share markets struggled as mounting violence in Iraq prompted investors to lock in more profits on recent equity market gains. (Reporting by Chuck Mikolajczak; Editing by Bernadette Baum)