Bernanke's comments drop small caps

The Russell 2000 (NYSE: IWM) is falling on news that U.S. Federal Reserve Chairman Ben Bernanke expects economic growth to slow in the fourth quarter. At 1:55 p.m. ET, the small-cap index had retreated 7.74 points, or 1%, to 768.22. The Dow Jones Industrial Average (INDU) was down 146.16 points, or 1.10%, to 13,153.86.

“Overall, the [Federal Open Market] Committee expected that the growth of economic activity would slow noticeably in the fourth quarter from its third-quarter rate,” Bernanke told the congressional Joint Economic Committee earlier today.

Economic growth will remain “sluggish” into the start of 2008 due to tighter credit and the slump in the housing sector, but will pick up later in the year, said the Fed chief.

Stocks started falling as soon as the news came out, with the Russell 2000 sliding below the flat line at about noon ET.

Bernanke also said that the depreciation of the U.S. dollar in combination with a rise in the price of oil have the increase of inflation in the long run.

The congressional testimony gave little clues as to the possibility of interest rate cuts in the near future, except that the central bank will remain watchful and will act as needed to ensure low inflation and economic growth.

Here are the current biggest percentage gainers and losers among companies with a market cap between $100 million and $750 million:

Biggest percentage gainers:

• Restoration Hardware Inc. (RSTO), up 141% on news it is being acquired for $267 million.
• Greenfield Online Inc. (SRVY), up 14% on news of a rise in third-quarter earnings.
• Stein Mart Inc. (SMRT), up 11% on news of a rise in October sales.

Biggest percentage losers:

• Hardinge Inc. (HDNG), down 37% despite news of a rise in third-quarter profit.
• Kenexa Corp. (KNXA), down 37% on news that it cut its full-year earnings guidance is below Wall Street estimates.
• PRG-Schultz International Inc. (PRGX), down 29%. A customer representative could not be reached for comment.

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