* Futures: Dow down 0.13%, S&P 500 up 0.11%, Nasdaq up 0.29%

* July retail sales unexpectedly fall in July, August

consumer sentiment survey due

* Reddit soars on S&P 500 inclusion announcement

* Drone makers gain after Trump plans tariffs on drone,

component imports

(Updates before market open)

By Avinash P and Purvi Agarwal

Aug 14 (Reuters) - Wall Street's main indexes were set for a

muted open on Friday, a day after the S&P 500 closed at a

record high, as investors assessed retail sales data and took

stock of the latest developments in the Middle East.

Retail sales dropped 0.6% last month after an unrevised 0.2%

gain in June, the Commerce Department's Census Bureau said on

Friday. Economists polled by Reuters had forecast retail sales,

which are mostly goods and are not adjusted for inflation,

edging up 0.1%.

"The reports this week actually give the (Fed) committee a

lot more optionality ... and not disappoint the markets," said

Bob Lang, founder and chief strategist at Explosive Options

"If they raise rates at the next meeting, it's not going to

be a horrible thing ... If they do not change policy, it means

that they have confidence that inflation trends are moving in

the right direction."

Benign producer and consumer inflation data earlier this

week have eased some concerns about a Federal Reserve

interest-rate hike in September, powering the S&P 500

index, which is on track for a third consecutive weekly gain

alongside the Nasdaq, their longest winning streak since early

April.

However, the Middle East conflict continued to weigh on

investor sentiment after transit through the Strait of Hormuz

appeared to have come to a near standstill after two more ships

were attacked there and the U.S. said it ​could maintain a naval

blockade of Iran indefinitely.

Investors may be becoming desensitized to geopolitical

shocks, but central banks cannot yet dismiss the latest

developments, said Elwin de Groot, Rabobank's head of macro

strategy.

With energy prices remaining elevated and Federal Reserve

Chair Kevin Warsh offering little guidance on the central bank's

next move, investors are scrutinizing economic data more

closely.

At 08:54 a.m. ET, Dow E-minis were down 68 points,

or 0.13%, and S&P 500 E-minis were up 8.25 points, or

0.11%. Nasdaq 100 E-minis were up 87.25 points, or

0.29%.

In premarket movers, Applied Materials ( AMAT ) fell 6%,

even after the chip equipment maker forecast fourth-quarter

revenue above Wall Street estimates. The stock has more than

doubled so far this year.

Investors have sold AI-linked stocks at the first sign of

slowing growth, even when companies reported strong results and

upbeat forecasts, while rewarding those whose AI investments

have produced clear returns.

Reddit jumped over 11% after the social media

company was selected to join the S&P 500 index, effective August

18.

Fox Corp's ( FOXA ) Class A shares gained 3.1% after J.P.

Morgan upgraded the media company to "overweight" from

"neutral."

Shares of some drone makers gained after President Donald

Trump said late on Thursday that he would impose tariffs on

imports of drones and their components.

Red Cat ( RCAT ) jumped 11.1%, Unusual Machines ( UMAC )

added 17.9% and AeroVironment ( AVAV ) gained 5.9%.

Chicago Fed President Austan Goolsbee said late on Thursday

the latest U.S. inflation data has been "a little better," and

that he was hopeful inflation could continue to improve.

Comments from Atlanta Fed interim President Cheryl Venable

and a preliminary University of Michigan consumer sentiment

reading will be closely watched later in the day.

(Reporting by Avinash P and Purvi Agarwal in Bengaluru; Editing

by Tasim Zahid and Anil D'Silva)