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NEW YORK, Sept 25 (Reuters) - Shares in RadioShack, the consumer electronics chain, fell sharply on Tuesday after the company was bumped off the S&P MidCap 400 index because its market capitalization was too small.
RadioShack shares dropped 16.3 percent to $2.56. Its exclusion from the index comes as questions are raised about its strategic directions and its business model as consumer electronics retailing moves online. In July, the company posted a surprise second quarter loss that sent the shares down 30 percent to a record low.
The U.S. consumer electronics chain was dropped from the S&P 500 index in June 2011. Shares of the company have plunged 86 percent since the beginning of 2011.
Certain funds track the composition of indexes like the S&P MidCap 400. Once a stock is removed from the index they have to sell it, putting pressure on the price. RadioShack's market cap was $254.57 million as of Tuesday's close. S&P says companies need to have a market cap in the range of $1 bln to $4.4 bln to be included in the index.
In the broader market, the S&P 500 suffered its worst day since June on Tuesday, pulled lower by Caterpillar Inc after it cut its profit outlook, the latest high-profile company to warn about profit growth.
The S&P MidCap 400 index fell 1.6 percent while the S&P SmallCap 600 index lost 1.5 percent. In comparison, the benchmark S&P 500 dropped 1.1 percent.
Despite the selloff on Tuesday, analysts at Goldman Sachs believe improving economic data ahead will likely sustain the move higher in equity markets this year.
"A shift from risk reduction to improving growth prospects could propel markets even higher, should the cycle more visibly improve from here," said Goldman Sachs analysts in a research note.
In other company news, Tesla Motors Inc fell 9.8 percent to $27.66. The electric car maker cut its forecast for 2012 revenue, citing a slower-than-expected rollout of its Model S sedan.
Forward Air Corp fell 11.4 percent to $30.84. At least two brokerages cut their price targets on Forward Air's shares after the company lowered its third-quarter profit forecast citing weaker-than-expected airport-to-airport cargo transportation volumes.