After a rocky morning for small caps, stocks edged higher, lifted by plunging crude prices and gains in consumer and retail companies. At 12:46 p.m. ET, the Russell 2000 (NYSE:IWM) was up 8.85, or 1.27%, at 706.48.

The price of crude oil sank $5 per barrel to $126 at mid-session to a six-week low. Weather forecasts predicted Tropical Storm Dolly will likely miss oil fields and refineries along the Gulf Coast. Previous reports warned the storm would come close to the area, possibly disrupting oil production.

Airline companies jumped on the news with Continental Airlines Inc. (NYSE:CAL) and JetBlue Airways Corporation (Nasdaq:JBLU) soaring more than 20% as the fuel costs showed the first signs of decreasing.

Financial stocks took a hit today after the Congressional Budget Office said it could cost the government as much as $25 billion to help troubled Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE). Congress will vote this week on whether Fannie and Freddie will receive government assistance. U.S. Treasury Secretary Henry Paulson said today that action must be taken to boost consumer confidence while strengthening the housing market.

Mortgage losses brought down Wachovia Corporation (NYSE:WB), which posted an unexpected second-quarter loss today of $8.9 billion and announced plans to eliminate 6,350 workers. Investors took solace in the fact that $6.1 billion of that was from a goodwill impairment charge.

Among broad market sectors on the rise are airline transportation; recreational activities; accident and health insurance; and home improvement retailers. Heading downward are coal; oil and gas operations; computer hardware; and computer storage devices.

Small caps leading the pack include Bluegreen Corporation (NYSE:BXG), which is up 90% today’s trading after announcing ahead of the opening its plans . . .

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