Citigroup news, Obama optimism, home sales report lift small caps

Small-cap stocks opened higher, lifted by a rescue package for the nation’s No. 2 bank, which eased bank failure worries. In addition, optimism about President-elect Obama’s economic advisory team bolstered stocks Friday and remained in play today ahead of a news conference to announce his appointments. At 10:06 a.m. ET, the Russell 2000 (NYSE:IWM) was up 9.52, or 2.34%, at 416.06. The market appeared to add to the morning gains after the home sales report was released.

The existing home sales report came in at an annual rate of 4.98 million, which was basically in line with the forecast. October sales were off 3.1%, versus a 4.7% rise in September. The inventory of homes for sale was down 0.9% to 4.23 million units, representing 10.2 months of supply. The median price for a home tumbled 11.3%, the largest percentage drop since the data series was started 40 years ago.

The rescue package for Citigroup Inc. (NYSE:C) includes $306 billion in loan guarantees on toxic debt assets and $20 billion in direct cash injection. Citigroup’s stock had been in a startling freefall in recent days, and there were concerns that the massive bank was in jeopardy of failure, which would carry broader systemic risk to the financial system, so today’s rescue news bolstered psychology across a wide range of financial stocks. Citigroup shares were up 41% shortly after the open. Oppenheimer analyst Meredith Whitney said that she would maintain an “underperform” rating for Citigroup and that she was cautious about the bank’s futures losses and capital raising efforts. She also said that Citigroup shares at $5 represented a “speculative investment” that was appropriate for risk-tolerant investors.

President-elect Obama is slated to announce news on his economic team today at noon ET. The market already has embraced his apparent appointment of New York Federal Reserve Bank President Tim Geithner as the next Treasury Secretary. In a radio address this weekend, Obama said he wants a two-year stimulus plan to have a goal of creating 2.5 million new jobs. President Bush is also expected to make an announcement this morning around 10:35 a.m. ET after a morning meeting . . .

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