On Wall Street's trading floors, the same question keeps popping up: Head fake, or the last, best chance to buy this market until October?

The latter case got a bit of support this morning, after July

retail sales

came out. Although the headline number came in above economists' forecasts, excluding autos sales gained less than people expected. And the June number was revised downward. All in all, it was a benign report, easing investor fears that the

Federal Open Market Committee

will keep on tightening after its expected quarter-point rate rise Aug. 24.

Stocks chopped around on the positive side through the first part of the day -- pretty impressive given the gains they put up yesterday. But gains have been capped by nervousness about what the next big economic report, tomorrow's

Producer Price Index

, might bring. Economists think the July PPI will come in pretty strong, but some worry that it will come in above even those expectations. They point to increases in energy prices and the drought that's hit the country this summer. They note a big gain in

The Journal of Commerce's

Industrial Price

index during the PPI reporting period.

The other side of that equation, though, is that if the PPI comes in well, it could be off to the races. Anecdotally, there's been a lot of talk about institutional money shying away from the market for fear of the data. If tomorrow's numbers don't upset things, many fund managers, remembering the way the market rallied through the June

Fed

meeting, will want to put cash to work.

But for all the talk of possible rallies, there's plenty of skepticism out there.

"We think it's too early to build positions," said Chris Callies, U.S. investment strategist at

Credit Suisse First Boston

. "We don't think the correction's over. It's not going to be finished until interest rates come down, and we don't think that's going to happen anytime soon."

Though recovery has been a good thing for the countries that last year saw their economies slipping toward the abyss, it has not been very good for Treasuries, thinks Callies. Foreign money that was invested in the safety of the Treasury market is getting repatriated to best take advantage of the global economic upswing.

The departure of foreign assets, along with continued inflation worries, has Stanley Nabi, chief investment officer at

Donaldson Lufkin & Jenrette Investment Management

, thinking that the recent rally won't be around for long. He sees a final bottom coming around the Oct. 5 Fed meeting, when he thinks rates will get raised again, shaking out weak holders and setting the stage for a year-end rally. "If we get two increases in interest rates, I think that will clear the decks," setting the stage for a year-end rally, he said.

"We're rallying in a pretty good correction," agreed Bill Allyn, head block trader at

Jefferies

. "The increase in commodity prices tells you that inflation is on the way. A lot of that is in the market, because it's come down drastically, but I think it could maybe trade at 9800."

Lately, the

Dow Jones Industrial Average

was up 103 to 10,891. The broader

S&P 500

was up 10 to 1312. The tech-infused

Nasdaq Composite Index

was up 17 to 2582 and

TheStreet.com Internet Sector

index was up 15 to 518. The small-cap

Russell 2000

was up 1 to 430.

Advancers were leading decliners 1,572 to 1,291 on the

New York Stock Exchange

, with 458 million shares changing hands. There were 102 new 52-week lows and 47 new highs. In the

Nasdaq Stock Market

advancers led decliners 1,932 to 1,650 on 563 million shares. There were 52 new lows and 46 new highs.

Thursday's Midday Watchlist

By Tara Murphy and Eileen Kinsella
Staff Reporters

Video chain

Blockbuster

(BBI) - Get Report

heard the sound of one hand clapping when it debuted yesterday at an offering price of $15 a share and ended the day unchanged. Lately shares were up 1 1/4, or 7.9%, to 16 1/4, with the stock finally breaking out of a tight 15-to-15 1/16 range around 11:45 a.m.

Market volatility and ho-hum receptions of recent IPO's are weighing on the next batch of up-and-comers, with two companies slashing the size of their offerings and a third shying away for the time being.

FirstAmerica Auto's

plans for an IPO came to an abrupt stop after the size of the offering had earlier been cut.

Luminant Worldwide

, an Internet consulting firm, lowered the number of shares it plans to offer, to 9 million from 12.6 million, and dimmed the price range to $10 to $11 from an earlier $11 to $13, said lead underwriter

Deutsche Banc Alex. Brown

.

U.S. Aggregates

, a maker of crushed stone, hammered down its offering to 5 million shares from 6.94 million, and chiseled the price to $15 from the original $17 to $19, according to lead underwriter Alex. Brown.

Mergers, acquisitions and joint ventures

Aegon

(AEG) - Get Report

added 1 1/2 to 83 3/4 on news that the Dutch insurer is acquiring the U.K. life insurance activities of

Guardian Royal Exchange

.

GenCorp

(GY)

added 1/2 to 22 after it said that was at the starting block with another defense company, discussing a possible joint venture that would involve the propulsion operations of its Aerojet segment. GenCorp told

Reuters

that both companies would have a near-equal stake in the newly formed entity.

General Mills

(GIS) - Get Report

added 1/16 to 82 9/16 after it announced plans but buy family-owned snack maker

Gardetto Bakery

. The acquisition would put

Nature Valley Granola Bars

,

Fruit Roll-Ups

and

Golden Graham Treats

under the General Mills label.

Veronis Suhler & Associates

is forging a deal to acquire

HCIA

(HCIA)

The health-care information systems developer was trading up 1 3/16, or 13.4%, to 10 1/16 on the news.

Chatter is again swirling on Wall Street that

Merrill Lynch

(MER)

, the nation's largest brokerage firm, is open to a merger deal either with

Chase

(CMB)

or another financial-services company, the Heard on the Street column in

The Wall Street Journal

says. The brokerage giant has been rumored to be in discussions with

American International Group

(AIG) - Get Report

, the insurance giant, the column says. Merrill gained 4 9/16, or 6.8%, to 71 1/2.

Novell

(NOVL)

added 11/16 to 24 5/8 and

America Online

(AOL)

rose 2 13/16 to 95 3/16 after the two said they are hooking up to integrate the AOL Instant Messenger service with Novell's directory software.

Earnings/revenue reports and previews

Clorox

(CLX) - Get Report

got bleached, falling 15 7/16, or 15%, to 87 13/16 despite posting fourth-quarter earnings of 96 cents a share, before charges, in line with the 12-analyst estimate and up from the year-ago 91 cents.

PaineWebber

cut its rating to neutral from attractive and

Merrill Lynch

cut its profit estimates for the year ending June 30 to $3.51 a share from $3.75.

Elan

(ELN)

, the Irish drug company with earnings whose accountant must be Samuel Beckett, was up 3, or 10.3%, to 32 on rumors that the

Securities and Exchange Commission

has sent a letter to the company saying it has a cleanish bill of health on its accounting issues. The rumor is the company will only have a 1-cent to 2-cent-per-share restatement of its earnings. This would be viewed positively, because the Street has been worried that the accounting problems were worse. Company officials in Ireland and New York weren't available immediately to comment.

Engle Homes

(ENGL)

gained 3/8 to 10 11/16 after it reported third-quarter earnings of 71 cents per share, ahead of the three-analyst estimate of 60 cents per share and up from 44 cents a share a year ago.

Gap

(GPS) - Get Report

lost 7/16 to 38 after it reported second-quarter earnings of 22 cents a share, a penny ahead of the 18-analyst estimate and up from the year-ago 15 cents.

TheStreet.com

wrote about Gap in a story

yesterday.

Gottschalks

(GOT)

was unchanged at 8 7/16, after it reported second-quarter earnings per share of a loss of 1 cent, better than the single analyst estimate of a 5-cent loss, and narrower than the year-ago loss of 13 cents.

Healtheon

(HLTH)

was up 4 9/16, or 15.4%, to 34 3/4, despite reporting a second-quarter loss of 25 cents a share, wider than the three-analyst estimate of a 22-cent loss but narrower than the year-ago loss of 47 cents.

Home Depot

(HD) - Get Report

added 2 3/4 to 60 7/16 after saying it expects to report second-quarter earnings of 44 cents a share. The 22-analyst estimate currently calls for earnings of 39 cents. The company said it will post second-quarter results Tuesday.

Keebler Foods

(KBL)

rose 1/8 to 29 1/8 after it reported second-quarter earnings before a charge of 27 cents a share, 3 cents ahead of the 10-analyst estimate and up from the year-ago 22 cents.

Kmart

(KM)

rose 9/16 to 14 1/2 after it reported second-quarter income from continuing operations of 26 cents a share, a penny ahead of the 16-analyst estimate.

Macerich

(MAC) - Get Report

added 7/16 to 24 after the company reported second-quarter earnings per share of 64 cents, a penny better than the 11-analyst estimate and up from a pro forma 59 cents a year ago.

ShopKo

(SKO)

lost 1 3/8 to 33 1/8 after it posted second-quarter operating earnings of 32 cents a share, a penny ahead of the three-analyst estimate and up from the year-ago 27 cents, which excludes a charge.

Weider Nutrition

(WNI)

was unchanged at 4 1/16 after it reported fourth-quarter pro forma earnings of 4 cents a share, lower than the two-analyst estimate. Year-ago EPS was 23 cents after a restatement.

Offerings and stock actions

Despite the nervousness,

NetScout Systems

(NTCT:Nasdaq) was faring well in its first trading day, climbing 1 1/2, or 13.6%, to 12 9/16 after being priced at 11 by Deutsche Banc Alex.Brown

Analyst actions

Dow Jones

(DJ)

added 1/2 to 51 5/16 after

Morgan Stanley Dean Witter

upgraded it to outperform from neutral.

Metro-Goldwyn Mayer

(MGM) - Get Report

slipped 3/16 to 18 7/16 even though

J.P. Morgan

raised its rating to buy from long-term buy.

Reynolds Metals

(RLM) - Get Report

added 1/2 to 65 3/4 after Deutsche Banc Alex. Brown cut its rating to market underperform from market perform.

Splitrock

(SPLT)

added 5/8, or 6.7%, to 10 after Credit Suisse First Boston initiated coverage with a buy rating and set a price target of 18.

Sun Microsystems

(SUNW) - Get Report

added 3/8 to 72 1/16 after Credit Suisse First Boston reiterated its buy rating on

Texas Instruments

(TXN) - Get Report

added 1 3/8 to 147 5/8 after Deutsche Banc Alex. Brown raised it's price target to 185 from 161.

24/7 Media

(TFSM)

rose 2 5/16, or 8.7%, to 29 after Merrill Lynch raised it to near-term buy from accumulate.

Miscellany

Iridium

(IRID)

lost 1 3/8, or 23%, to 4 9/16 after saying it has defaulted on loans totaling more than $1.5 billion, bringing the company one step closer to bankruptcy and posing potential problems for backer

Motorola

(MOT)

, which lost 1/2 to 92 1/4.