Updated from 4:03 p.m. EDT

Stocks were under pressure for most of the session Wednesday as several weak economic reports had investors questioning the strength of the nation's recovery, but blue-chips rallied late to end higher. Tech issues finished with modest losses.

The

Dow Jones Industrial Average closed with a gain of 56.56 points, or 0.7%, to 8736.59. The

Nasdaq lost 15.93 points, or 1.2%, to 1328.26, and the

S&P 500 added 8.84 points, or 1%, at 911.62.

Semiconductor, networking and Internet stocks were all weaker. The Philadelphia Semiconductor Index was down 4.5%, the Amex Networking Index fell 3.3%, and TheStreet.com Internet Index was off 3.7%. Decliners beat advancers 5-to-4 on the Nasdaq, while on the

New York Stock Exchange winners and losers were tied.

Intel

(INTC) - Get Report

, the world's No. 1 chipmaker, lost 1% at $18.79. Networking giant

Cisco

(CSCO) - Get Report

was down 1.1% to $13.19, and online bookseller

Amazon.com

(AMZN) - Get Report

was off 2.1% to $14.46.

On the NYSE,

General Electric

(GE) - Get Report

and

Citigroup

(C) - Get Report

were the most actively traded among members of the Dow. GE rose 1.9%, and Citi slipped 1.2%.

Economic reports played a big role in the market, even though the flow of corporate news was itself brisk.

The Commerce Department issued its advance

gross domestic product report before the opening bell. The data, which gauge the market value of goods and services produced in the economy, showed a 1.1% rise in the second quarter, well below the 2.3% consensus estimate. First-quarter GDP was revised downward to 5% from 6.1% growth.

The data signaled that the U.S. economy's recovery could be losing momentum, but two more reports on second-quarter GDP will be issued over the next two months and should provide more clarity.

Separately, the

Chicago purchasing managers' index, which measures manufacturing activity in the Midwest, fell to 51.5 in July from 58.2 in June. Economists were expecting a reading of 56.5. A reading above 50 indicates expansion in the factory sector. The survey revealed growth for the sixth straight month, but the index did come in below June's reading of 58.2.

Weak readings on the economy come at the worst possible time for technology companies that have seen demand fall apart over the last two years. As Jim Cramer pointed out in a

column Wednesday, stocks like Cisco,

Lucent

(LU)

and

Nortel

(NT)

-- while steering clear of accounting scandals -- still need a robust recovery before anyone returns to their stock.

On the other hand, food companies, defense contractors and nonpharmaceutical health care providers have thrived in this environment.

Among individual stocks, the Justice Department is now working in conjunction with the

Securities and Exchange Commission

in its investigation into

AOL Time Warner's

(AOL)

accounting practices at its America Online Internet unit.

The company confirmed a published report about the probe and said it would cooperate with investigators. AOL disclosed last week that the SEC had launched a fact-finding inquiry into its accounting practices after the

Washington Post

suggested it might have artificially inflated revenue in 2000 and 2001. Shares dropped 7% to $11.50.

Computer hardware giant

IBM

(IBM) - Get Report

announced after the close Tuesday that it would purchase PricewaterhouseCoopers' consulting business for $3.5 billion in cash and stock, marking its largest acquisition to date. The company said the acquisition would lower fourth-quarter earnings by roughly 30 cents a share. Shares of Big Blue lost 2% to $70.40.

Local telephone company

Verizon

(VZ) - Get Report

reported a second-quarter loss due to one-time charges and declining revenue and lowered its 2002 earnings guidance. The company posted a loss of $2.1 billion, or 78 cents a share, compared with a loss of $1 billion, or 38 cents a share, in the year-ago quarter.

Excluding one-time items, Verizon said it earned 77 cents a share, matching analysts' forecasts. In light of fierce competition within the industry and weak customer demand, Verizon pared its full-year outlook, but shares jumped 9% to $33.

Another warning hit the technology sector, this one from computer graphics chipmaker

Nvidia

(NVDA) - Get Report

. The company warned after the close Tuesday that second-quarter revenue would fall short of analysts' expectations as a result of weak demand for personal computers.

Nvidia said it expects revenue to come in at $410 million to $430 million, sharply lower than the $568 million consensus estimate. The shares were off 32% at $11.07.

Sealed Air

(SEE) - Get Report

continued to get pummeled on concerns that the company could face liability for asbestos claims filed against

W.R. Grace

(GRA) - Get Report

. Several Wall Street firms downgraded Sealed Air, and its shares plunged 34% to $14.51.

In the drug sector,

Eli Lilly

(LLY) - Get Report

closed up 0.3% to $58.42 despite Merrill Lynch lowering its investment rating on the stock to near-term neutral from buy. Merrill expressed concerns that the risk-reward profile is becoming more balanced.

Also on the research front, Dow component

American Express

(AXP) - Get Report

was upgraded by Lehman Brothers, sending shares up 4% to $35.26.

Amgen

(AMGN) - Get Report

, the world's largest biotech company, was initially down sharply following reports that it lost a patent infringement case related to its anemia drug Aranesp. But the stock made a strong surge in afternoon trading, and ended up 0.3 $45.64. The broader sector was also gathering steam, with the Amex Biotechnology Index tacked on 1%.

Semiconductor equipment maker

KLA-Tencor

(KLAC) - Get Report

said fourth-quarter earnings fell 64% due to weak demand and lowered guidance for its fiscal first quarter. The company managed to top analysts' forecasts by 3 cents, but shares fell 2.4% at $39.39 on a weak outlook.

Outside the U.S., terrorist activity continues to rock the Middle East, as an explosion ripped through a cafeteria at Jerusalem's Hebrew University Wednesday, killing at least six people and wounding more than 80 others, according to reports from the region. The militant Islamic group Hamas has claimed responsibility for the attack. The explosion followed a Palestinian suicide bombing in Jerusalem on Tuesday that resulted in four casualties.

Treasury issues rallied following the weak economic reports. Around 4 p.m. EDT, the 10-year note was up 30/32 at 103 5/32, yielding 4.465%. The bond was up 1 9/32 to 100 31/32 and yielding 5.308%.

Overseas, stocks were mixed. In Europe, London's FTSE 100 gained 1.6% at 4246, and Germany's Xetra DAX dropped 4.6% to 3700. Japan's Nikkei 225 fell 1.3% to 9878, while Hong Kong's Hang Seng closed up 1.1% to 10,267.