Small caps up on rate cut hopes

Alex Alexandrov | Dec 11, 2007 10:47am EST | Comment

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The Russell 2000 (NYSE: IWM) is higher as investors anticipate the U.S. Federal Reserve will lower its target interest rate.

At 10:41 a.m. ET, the small-cap index had climbed 1.86 points, or 0.24%, to 793.06. The Dow Jones Industrial Average (INDU) had declined 20.64 points, or 0.15%, to 13,706.39.

Small-cap stocks are posting modest gains as investors focus their attention on the U.S. Federal Reserve, which is meeting today to decide on monetary policy. Financial markets have recently taken the view that a 0.25% cut in the federal funds rate, the rate at which commercial banks make overnight loans to each other, is a sure bet.

The target interest rate currently stands at 4.5%. The U.S. central bank will announce its decision at 2:15 p.m. ET.

A cut will help boost the economy, which some economists say could fall into recession due to the ongoing slump in the housing sector and the credit squeeze.

Also helping the bulls are solid earnings news from major players.

Telecommunications giant AT&T Inc. (NYSE: T) said that it will buy back up to $15.2 billion of shares. The San Antonia, Texas-based company also said that it expects to see growth in fiscal 2008 earnings.

Chipmaker Texas Instruments Inc. (NYSE: TXN) also contributed to the upbeat sentiment when it raised its fourth-quarter sales forecast.

In the small-cap world, FuelCell Energy Inc. (Nasdaq: FCEL), which makes power plants, narrowed its net loss for the fiscal fourth-quarter and beat analysts’ projections.

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

Biggest percentage gainers:

• Genesis Microchip Inc. (GNSS), up 57% on news it is being purchased by STMicroelectronics NV (STM) for about $336 million.
• Smith Micro Software, Inc. (SMSI), up 18% on news it will buy part of Pctel Inc. (PCTI) for $59.7 million.
• Cost Plus, Inc. (CPWM), up 19%.

Biggest percentage losers:

• NCI Building Systems, Inc. (NCS), down 15% on news of a decline in fiscal fourth-quarter profit.
• Cowen Group, Inc. (COWN) down 13% on news of an increase in the ratio of compensation and benefits expense to revenue.
• EnteroMedics Inc. (ETRM), down 14%.