Benign inflation signals sent the market running higher this morning but towards the end of the session, the legs were feeling a little tired as the proxies slowed and came off intraday highs.

A morning report from the

Labor Department

showed that prices paid to producers had their steepest drop in more than a year, breaking a two-month trend of strong gains, as energy prices tumbled. Throw in strong earnings from bellwether

Dell

(DELL) - Get Report

, positive comments on

Agilent

(A) - Get Report

and yesterday's soft retail sales report and investors had enough reasons for a party.

Major proxies shot higher out of the gate and the rally looked like it had some pretty young legs. As the day wore on though, investors turned back to that troubling little issue of volume and the fact that, yes, the Fed is

still

going to meet Tuesday and perhaps hand out as much as a 50-basis-point rate hike and the ruckus started to die down a little.

The

Dow Jones Industrial Average

ended the day up 63.4, or 0.6%, to 10,609.37 , after being up more than 120 points earlier on. The

Nasdaq Composite Index

rose 29.49, or 0.8%, to 3529.07 on what was the one of the lightest volume day of the year. The

S&P 500

lifted 13.5, or 0.9%, to 1420.96 and the

Russell 2000

rose 1.55, or 0.3%, to 490.94.

TheStreet.com Internet Sector Index

gained 9.5, or 1.1%, to 843.5

"Technically, it's an oversold bounce," said Jim Volk, co-director of institutional trading at

D.A. Davidson

in Portland, Oregon. About an hour away from the close, Volk said the market was backing off from its early runup. Noting the light volume and aimless swings of the past few days, he said "People are trading this market more than they are investing. There is not a lot of direction or conviction."

On the upside, some traders and market strategists said that the recent weaker economic news has some hoping that a rate hike next Tuesday, particularly a half-point one, would mean the Fed will be finished for a while. "There was a little sigh of relief in the markets that with low-enough inflation signals, 50 bps may be enough," said Volk.

Howard Barlow, vice president of

WHB/Wolverine Asset Management

in Stamford, Conn. echoed the sentiment. "Twenty five basis points would be kind of lackadaisical at this point. I don't think Greenspan wants to surprise anyone. But people think, 'Hey, if we get 50 this time we won't necessarily have to have anything,'" later on. "What the market hates more than anything is uncertainty."

Financial stocks moved higher today with the help of the latest numbers.

Chase Manhattan Bank

(CMB)

shook off the pressure of a cut in its rating from

J.P. Morgan

, climbing 1 5/8 to 71 5/8. Dow component

Citigroup

(C) - Get Report

moved up 1 5/16 to 60 3/16. The

American Stock Exchange Broker/Dealer Index

gained 2.5% and

Philadelphia Stock Exchange

rose 2.3%.

Telecom stocks were mixed with the

Nasdaq Telecommunications Index

slipping 0.2%.

AT&T

(T) - Get Report

tacked on 3, or 8.5%, to 38 1/2 after

Merrill Lynch

reiterated a buy on the stock.

MCI Worldcom

(WCOM)

slipped 1 1/16 to 41 1/4.

Strength was scattered in the tech sector with no particular trend. Internet stocks

Excite@Home

(ATHM) - Get Report

and

America Online

(AOL)

were up a notch, while

CMGI

(CMGI)

and

Amazon.com

(AMZN) - Get Report

were in the red. For more on the Internet, take a look at

TSC's

most recent

Nothing But Net.

Semiconductor stocks were also mixed, though the

Philadelphia Stock Exchange Semiconductor Index

posted a 1.7% gain.

LSI Logic

(LSI) - Get Report

was up 5.5% while

KLA-Tencor

(KLA)

was up 3.5%. Meanwhile, heavyweight

Advanced Micro Devices

(AMD) - Get Report

fell 2.4% and

Intel

(INTC) - Get Report

edged down 0.5%.

Looking ahead, Volk said it will be at least a couple of weeks before interest rate news settles in before we can get any clear reading on the markets. Though he cited the latest economic data as a positive, he focused on a number of worries as well. "On the negative side, we still have pretty high valuations and a lot of nervous people. The group of players has become more cautious and even a little smaller," given the light volume, he said.

Volk also mentioned the recent resignations from hedge fund managers

Julian Robertson

and

Stanley Druckenmiller

as unsettling developments. "Julian Robertson didn't buy tech and Druckenmiller bought tech. What's wrong with this picture? If two of the smartest guys on Wall Street can't figure it out, who can?," he asked.

For the week, the Dow was up 0.3%, while the S&P 500 fell 0.8%. The Nasdaq Composite dropped 7.5% and the Russell 2000 lost 4.3%. The

Dow Jones Utility Average

rose 3.3% and the

Dow Jones Transportation Average

slipped 0.1% for the week.

The

American Stock Exchange Composite Index

edged up 0.8% in the past week while

TheStreet.Com Internet Sector

index fell 6%.

Market Internals

Breadth was positive on light volume.

New York Stock Exchange:

1,591 advancers, 1,319 decliners, 862 million shares. 81 new 52-week highs, 69 new lows.

Nasdaq Stock Market:

2,116 advancers, 1,902 decliners, 1.199 billion shares. 42 new highs, 92 new lows.