After swooning out of the gate, the Russell 2000 has pulled off its lows of the session, but still remains besieged in the red mid-session. A spike in unemployment claims, disconcerting July retail sales, an uptick in oil prices and gloomy results from insurance juggernaut American Insurance Group (NYSE:AIG) pushed small caps lower, while a better-than-expected pending home sales report served to taper losses.

At 12:41 p.m. ET, the Russell 2000 (NYSE:IWM) had slipped 4.67, or 0.64% to 721.23, while the Dow has given back 94.93, or 0.81%, to 11,561.14.

The Labor Department reported this morning that the weekly claims report spiked to 455,000, marking the largest weekly figure since March 2002. Adding insult to injury, the number was substantially above the forecast of 420,000 and adds to the sobering picture of a weaker labor market. The continuing claims number rose to a fresh cycle high at 3.311 million, the highest level since December 2003.

“Continuing claims, which are inversely related to job creation, jumped this week to their highest level since December 2003,” Steven Wood, chief economist with Insight Economics, said in an email. “This is an indication that hiring has weakened.”

In other economic news, the National Association of Realtors reported this morning that pending home sales rose 5.3% to 89 from May’s reduced figure of 84.5. Economists were expecting the index to slide to 84.3. The rosier-than-anticipated report helped to pull stocks off their lows of the session. However, despite a gain during June, the number is still 12% lower than last year.

Retail sales for the month of July as a whole weren’t reassuring. Wal-Mart’s same-store sales disappointed and suggested that the fleeting wave of consumer spending from the government stimulus bill was evaporating. Costco Wholesale Corp. (NYSE:COST) was able to trump analysts’ mean sales forecast, however it results were buoyed by inflated gasoline prices and therefore not quite as strong as at first glance.

In other corporate news, AIG’s earnings reignited the “doom and gloom” concerns surrounding the credit crunch and the financial sector. The largest U.S. insurer clocked a loss of $5.36 billion—its third straight quarterly loss—as the firm wrote down more than $11 billion in connection with credit- default swaps and hinted that the need to raise more capital is on the docket.  

After retreating for a good portion of the week and falling to a level of 20% below the July record peak Wednesday, energy prices were back on the rise as supply concerns spurred by a fire in a key pipeline in Turkey and disruptions out of Nigeria pushed futures higher. Crude oil prices climbed roughly $1.70 dollars a barrel to trade around $120 midday. 

The greenback is up against the euro, but down against the yen midday. The dollar tumbled 0.6% this morning on the heels of the weekly claims report, but then regained ground after comments by ECB President Jean-Claude Trichet, who said economic growth could be “substantially weaker” looking forward in the eurozone and that “downside risks prevail.”

“Things have downshifted fast in the 'Zone as they accelerate to the bottom,” Andy Busch, global foreign exchange strategist at BMO Capital markets said in an email.  “No rate hikes coming here for some time. Euro gets crushed.  Reserve managers may have interest below, but their interest has not held the Euro like it has in the past.”

Broader industry groups that seeing upside mid-session include iron and steel, oil and gas, and water utilities, while airline, retailers, and water transportation are leading groups under pressure.

Individual small-caps on the move include Noble International Ltd. (Nasdaq:NOBL) which is up some 73% after the company announced after-hours Wednesday that its second-quarter net earnings and revenue were up significantly over the prior year period. The company clocked a profit while analysts were forecasting a loss for the quarter.

McCormick & Schmick’s Seafood Restaurants Inc. (Nasdaq:MSSR) is up 16% after reporting after the close Wednesday better-than-expected second-quarter earnings. Susser Holdings (Nasdaq:SUSS) has climbed 23% after the convenience store operator reported higher second-quarter earnings that beat analysts’ estimates by $0.33.

On the downside, shares of Citi Trends, Inc. (Nasdaq:CTRN) have sunken 20% after the value-priced retailer of urban fashion said after Wednesday’s close that comparable store sales edged down 1.9% in the month of July as sales softened towards the end of the second quarter. The retailer said sales for the second quarter increased 6.5% as a result of the government stimulus checks — a temporary propellant for consumer spending.