Russell 2000 jumps on late rally

The Russell 2000 (NYSE: IWM) went through the roof today as a late rally in financial shares lifted all the major U.S. indices. The small-cap index advanced 21.86 points, or 3.26%, to 693.43. The Dow Jones Industrial Average (INDU) gained 298.98 points, or 2.50%, to 12,270.17.

On a year-to-date basis, the Russell 2000 has lost 9.48%, while the Dow has let go 7.50% and the S&P 500 is missing 8.84%.

Small-cap stocks outpaced their larger brothers today as speculation of more rate cuts fueled the late-session rally.

February fed funds futures overwhelmingly suggest that the U.S. Federal Reserve will vote to lower its target for the federal funds 0.75% during its two-day meeting starting Jan. 29. A reduction of at least 0.50% is seen as a sure bet.

On Tuesday, the Fed lowered the federal funds rate, the rate at which commercial banks make overnight loans to each other, to 3.50% from 4.25%.

Shares representing the financial sector were invigorated and freed themselves of the bears’ grasp. Among the few exceptions was consumer financial services provider First Cash Financial Services, Inc. (Nasdaq: FCFS), which issued a 2008 earnings guidance below analysts’ projections.

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