M&A news, expected House rescue OK overshadow weak jobs

Small-cap stocks pushed higher on the open, setting aside a troubling labor market picture to focus on merger activity in the banking arena, and a widely expected House approval of the financial rescue plan. At 9:51 a.m. ET, the Russell 2000 (NYSE:IWM) was up 10.45, or 1.64%, at 648.11.

The Labor Department reported that 159,000 non-farm payroll jobs were lost in September, which marked the worst loss in some five years. Even scarier is that economists are predicting more jobs will be lost in the next couple of months as the economy deals with the deepening credit crisis.

“The collateral effects of the recent turmoil in the credit markets will likely make the job losses even larger next month,” Steven Wood, chief economist with Insight Economics, said in an email. “So far this year, 760k jobs have been lost. The economy has clearly slipped into a jobs recession because the housing meltdown and credit market turmoil has spread to the broader economy. Persistent job losses have probably pulled the overall economy into recession as well,” Wood said.

The employment rate held steady at 6.1%, but it appeared that the market saw the bad news on jobs as a rubber stamp for the House financial rescue plan vote later today, and perhaps an emergency rate cut by the Federal Reserve to boot. The ability to see the glass as “half-full” on the somber monthly employment report was also likely enhanced by oversold conditions and a reluctance by hot money shorts to carry exposure through the House vote.

About 90 minutes ahead of the opening, news broke that Wells Fargo & Co. (NYSE:WFC) would merge with Wachovia Corp. (NYSE:WB), and that the deal would be consummated without any financial assistance from the government or FDIC. Shortly after the open, WB shares shot up 76%. WFC stock was up 8%, even though the firm said that they would incur integration charges of about $10 billion and would issue up to $20 billion of new securities, mostly common stock. This deal would nix Citigroup Inc.’s (NYSE:C) earlier bid for WB’s banking assets, a . . .

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