Housing worries down Russell 2000

The Russell 2000 (NYSE: IWM) and the other major U.S. indices posted losses today following mixed housing news and more mortgage concerns. The small-cap index fell 19.09 points, or 2.64%, to 704.86. The Dow Jones Industrial Average (INDU) lost 238.42 points, or 1.86%, to 12,589.07.

On a year-to-date basis, the Russell 2000 has declined 7.99%, while the Dow is down 5.09% and the S&P 500 has shrunk 5.32%.

Small-cap stocks opened in positive territory and then gained more following news of an announcement at 10 a.m. ET that pending U.S. home sales fell 2.6% in November to a reading of 87.6.

The decline is more than what economists were expecting, but investors apparently liked the fact that the figures for October and September were revised higher.

Additionally, the National Association of Realtors reported that it expects existing-home sales to hold steady during the following months before rising later in the year and improving in 2009.

“On the one hand, we have a pent-up demand from the four million jobs added to our economy over the past two years of sales decline,” said Lawrence Yun, NAR chief economist, in a statement. “On the other, consumers continue to wait for additional signs of market stabilization.”

The trade association forecasted that existing-home sales will total 5.66 million in 2007 and 5.70 million in 2008, compared with 6.48 million in 2006.

But even though stocks were posting modest gains, the momentum didn’t last and the bulls lost their footing.

One of the catalysts was speculation that Countrywide Financial Corp. (NYSE: CFC), the biggest U.S. mortgage lender, is facing bankruptcy due to swelling debt-protection costs. The Calabasas, Calif.-based company, which had liquidity problems last summer due to the meltdown in the subprime mortgage sector, issued a statement denying the rumors.

Nevertheless, investors became apprehensive. Last summer a number of mortgage lenders went bankrupt as U.S. home prices began to decline and borrowers were unable to service their loans.

By 11:30 a.m. ET, the Russell 2000 was in negative territory, where it spent the remainder of the session, except for a very brief foray above the flat line in the afternoon.

Adding to the bearish mood was Eric Rosengren, president of the Federal Reserve Bank of Boston, who told the Connecticut Business and Industry Association that the housing market will probably continue to stagnate in the first half of 2008.

However, Rosengren made sure to say that he is not predicting a recession.

Here are the day’s biggest percentage gainers and losers, along with top volume leaders, among companies with a market cap between $100 million and $750 million:

Biggest percentage gainers:

• Pharmasset, Inc. (VRUS), up 33% to $26.86 despite news of an analyst downgrade.
• Incyte Corp. (INCY), up 20% to $11.39 on news of positive preliminary results from a study of a drug for rheumatoid arthritis.
• Helen of Troy Ltd. (HELE), up 14% to $17.11 on news of an analyst upgrade.

Biggest percentage losers:

• Triad Guaranty Inc. (TGIC), down 21% to $7.08.
• Measurement Specialties, Inc. (MEAS), down 19% to $17.36 on news it has lowered its guidance for fiscal 2008.
• ShoreTel Inc. (SHOR), down 15% to $5.09 on news it is being investigated for possible violations of federal securities laws.

Volume leaders:

• Akeena Solar, Inc. (AKNS) 6,352,700 shares traded.
• Radian Group Inc. (RDN) 4,038,400 shares traded.
• Origin Agritech Ltd. (SEED) 3,967,800 shares traded.

The day saw 256 small-cap stocks set 52-week lows, while six caps established 52-week highs.