Small caps sink as economy woes back in spotlight

Small-cap stocks took a dive on the opening, pulled down by fears about the economy, which overshadowed the Senate’s approval of the financial rescue plan last night. At 9:58 a.m. ET, the Russell 2000 (NYSE:IWM) was down 10.67, or 1.59%, at 660.92.

Concerns about the economy were stoked Wednesday when manufacturing data slipped into recession-like levels on the ISM Manufacturing Survey and as the bottom completely fell out on vehicle sales. Then, when weekly unemployment claims soared this morning, it only added to the gloom.

The weekly claims headline figure came in at 497,000, which was way above the consensus projection of 468,000. Claims were at the highest point since September 2001 and the four-week moving average was at the highest since October 2001. The continuing claims figure was also at five-year highs, setting the stage for a potential bearish surprise on the big monthly jobs report Friday morning.

The Senate approval vote was 74 to 25 and the House is widely expected to approve the rescue plan Friday, after shocking the world last week by giving the Wall Street bailout a thumbs down. This time around, a lame duck President with one of the worst approval ratings in history sent a message to the House that this rescue plan isn’t just a free ticket for investment bankers, saying it was “essential to the financial security of every American.” The newest Senate-tweaked version of Treasury Secretary Henry Paulson’s $700 billion bailout includes tax cut provisions and extended FDIC protection of bank deposits, which should be enough of a sweetener to get House Republicans to provide a nod of approval after the previous plan was narrowly defeated 228 to 205. A simple majority is required for the bill to pass the House, then move on the President for signing.

Around the world, stock markets were mixed despite the Senate’s approval, with Europe shares on the rise, while Asian equities were mixed. Swiss banking giant UBS says they will post a small profit for the quarter, which sparked a rally . . .

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