Late rally lifts small caps

The Russell 2000 (NYSE: IWM) posted solid gains as a rollercoaster day of trading ended with a sudden late rally. The small-cap index added 4.94 points, or 0.64%, to 780.90. The Dow Jones Industrial Average (INDU) lost 33.73 points, or 0.25%, to 13,266.29.

On a year-to-date basis, the Russell 2000 has lost 0.83%, while the Dow has advanced 6.35% and the S&P 500 has added 4.11%.

Futures were pointing up and stocks opened in positive territory following news that automaker Ford Motor Co. (NYSE: F) expects to break even in 2007 following a narrower third-quarter loss. The company beat Wall Street’s expectations by posting a loss of $380 million, compared with a loss of $5.2 billion a year earlier.

Helping the bulls in the early minutes of trading was news that British mining company Rio Tinto turned down a buyout offer from Australia’s BHP Billiton Ltd. The rejection led to speculation of more possible mergers and acquisition activity.

There was negative news as well, coming in the form of a second consecutive month of weak sales by U.S. retailers. Many retailers blamed their lackluster performance in October on warm weather, which is hurting sales of cold-weather items, and the higher price of gasoline, which is taking money out of consumers’ wallets.
Stocks bounced around in the morning, with the Russell 2000 generally staying in the green while the Dow was mostly in the red.

But the bears took over after 11 a.m. ET, when U.S. Federal Reserve Chairman Ben Bernanke predicted that U.S. economic growth will slow in the fourth quarter.

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