Smallcaps rise modestly; technical 'Death Cross' looms

NEW YORK (Reuters) - Smallcaps stocks reversed early losses to edge higher on Tuesday, though the Russell 2000 index <.TOY><.RUT> hovered near a technical milestone that could signal further declines.

The broad smallcap index had earlier been on track for its first three-day losing skid since late July, but erased those losses following a Wall Street Journal report that indicated the Federal Reserve may be less hawkish than had been anticipated. The index was last trading up 0.4 percent.

On Monday, the index broke below both the 50-day and 200-day moving averages, which are technical support levels.

In addition, the 50-day moving average for the index is moving closer to breaking below its 200-day moving average, a technical signal known as a "Death Cross," which points to underlying weakness in the sector.

Glimcher Realty Trust is the best performer on the index, as its shares surged 29.7 percent to $13.74 after shopping center operator Washington Prime Group said it would buy its smaller rival for $2.06 billion.

On the downside, VirnetX Holdings Corp plunged 49.3 percent to $7.56 after a federal appeals court threw out a jury order requiring Apple Inc to pay $368.2 million in damages for infringing four patents.

The Russell index reached a Death Cross in August 2011, and the index dropped 7 percent over a six-week period to a 13-month low.

However, in July 2012, the index also approached a Death Cross but the 50-day managed to successfully bounce off its 200-day average at that time, prompting a rally of more than 10 percent over the following six weeks.

(Reporting by Chuck Mikolajczak; Editing by Bernadette Baum)