Small caps spent most of the day clinging to mild gains, but relinquished positive territory late in the day as concerns about the economy and slumping financial stocks overtook support from bargain hunters. The Russell 2000 (NYSE:IWM) closed down 5.23, or 1.14%, at 451.30 and is now down 41% for 2008. Meanwhile, the Dow tumbled 2.63% on the day and is off 37% for the year; the S&P 500 was off 2.58% Monday and is now down 42% for the year.

Small-cap stocks were firm relative to large caps all day long, fueled in part by struggling large-cap financial and technology shares. In addition, large-cap commodities firm Alcoa Inc. (NYSE:AA) was a major drag on some big-cap indices as the world’s largest aluminum firm tumbled nearly 10% amid analyst downgrades. The Financial Select Sector SPDR Fund fell 5%, with Bank of America Corp. (NYSE:BAC) down more than 7%. Citigroup Inc. (NYSE:C) made headlines early this morning on news that they plan to slash some 50,000 jobs; C shares eventually lost about 6%.

In the commodities arena, crude oil prices had an up and down day, but eventually succumbed to the economic fears and shed $2.09 a barrel, or 3.6% on the day, which kept gains on some energy stocks at bay. However, even with the slip in crude oil prices, the Energy SPDR Fund was only down 0.5%. Other commodities likely found some relief in oversold conditions and in a pullback on the U.S. dollar, which was off about 0.6% versus the euro.

Japan officially announced that their economy was in recession overnight. The eurozone announced it was in a recession last week. The U.S. economy still hasn’t announced an official recession, but a Philadelphia Federal Reserve survey today said that the American economy has actually been in a recession since spring and that the recession would last 14 months, making it the most prolonged growth drought since the Great Depression in the 1930s. With much of the world limping along right now, the lack of a notable stimulus package out of weekend G-20 meetings in Washington stirred some gloom (however, most traders already had expected little of substance from the G-20).

The dreary news on the economy took a brief respite this morning when industrial production data came out above expectations, with a gain of 1.3% versus a forecast of just 0.2%. Although the report provided a brief lift to the stock market, . . .

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