The stock market is putting together a modest rally on this, the third-to-last trading session of the year. There's some renewed interest in drug stocks and retailers today, and the maligned technology sector is also pulling its weight, adding some juice to the rally.

That's not to say the rally is particularly convincing, although after a year like this, one can't be too picky. The

S&P 500 is up 0.8%, and the

Nasdaq Composite Index, which had lately gained 27 points to 2520.5, still showed more stocks lower than higher on the day. Looking into next year, however, speculation that the

Federal Reserve will shave a quarter point or so off the current 6.50%

fed funds rate is growing.

Investors are certainly primed for this, based on the steady decline in long-term and short-term interest rates, as well as the

fed funds futures contract, which is currently fully discounting a 25-point rate cut Jan. 31, the date of the Fed's next meeting.

Broad sentiment aside, there are still a few potholes in the market. Today's loser is

Network Associates

(NETA)

, a software security systems provider. The company said

yesterday it expects to lose between $130 million and $140 million in the fourth quarter. It was lately dying, off 67.4%.

Network Associates did not provide earnings-per-share estimates in its release, but the 11 analysts polled by

First Call/Thomson Financial

were previously calling for the company to earn 31 cents a share for the quarter. The company earned 20 cents in the year-ago period. Analysts, such as those at

Robertson Stephens

, have accepted the role of Lord High Executioner this morning, chopping the company's earnings-per-share estimates for 2000 to 9 cents from $1.01.

TheStreet.com's

Herb Greenberg has been following this company for a while and has interesting

insights into its accounting practices.

Retailers were up strong today after the weekly sales reports showed a recovery in consumer demand in the final week of the year. Still, it's a bit late to salvage a lackluster December, as the last week of the month only accounts for about 10% of the monthly sales volume. According to the

Redbook Retail Sales

report, December sales are up 2.1% year-over-year, less than expected.

The

S&P Retail Index

gained 3.8% today, better than expected.

Gap

(GPS) - Get Report

was bouncing, up 9.3% despite Goldman Sachs, which cut earnings estimates on the retailer.

Intimate Brands

(IBI)

, which also had its estimates trimmed by Goldman, was lately up 7.2%.

Investors are pouring money into drugs and health care stocks today, lifting a number of those stocks to 52-week highs. Dow component

Johnson & Johnson

(JNJ) - Get Report

is at a new high, up $1.69 to $104.06, while the Amex Pharmaceutical Index is up 1.4%.

Meanwhile, the

Amex Health Care Index

gained 1%, and a number of health care names, such as

Healthsouth

(HRC) - Get Report

and

HCA

(HCA) - Get Report

were at 52-week highs.

Market Internals

Breadth was mixed on moderate volume.

New York Stock Exchange: 1759 advancers, 1035 decliners, 502 million shares. 218 new 52-week highs, 61 new lows.

Nasdaq Stock Market: 1782 advancers, 2017 decliners, 993 million shares. 89 new highs, 271 new lows.

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Most Active Stocks

NYSE Most Actives

  • Lucent Technologies (LU) : 22.1 million shares.
  • AT&T (T) - Get Report: 12.3 million shares.
  • Nortel (NT) : 8.7 million shares.

Nasdaq Most Actives

  • Network Associates (NETA) : 46 million shares.
  • JDS Uniphase (JDSU) : 24.9 million shares.
  • Cisco Systems (CSCO) - Get Report: 24.6 million shares.

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Sector Watch

Similar to yesterday, investors continued to find solace in energy stocks. The

American Stock Exchange Oil & Gas Index

and the

Chicago Board Options Exchange Oil Index

were lately edging higher. Natural gas stocks soared yesterday as natural gas prices hit new 10-year highs. Among the energy stocks hitting new 52-week highs today were

Apache

(APA) - Get Report

and

Chesapeake Energy

(CHK) - Get Report

. Oil services stocks were lower, with the

Philadelphia Stock Exchange Oil Service Index

, which tracks the sector, losing 1.5%. Oil service companies had been climbing since the beginning of the month.

Chip stocks, whose fortunes have fallen along with diminished demand for equipment and computers, were stronger. The semiconductor sector has been uniformly lousy for the better part of four months now, and they're seeing a little interest today. The

Philadelphia Semiconductor Index

, which tracks the sector, was up 5.3%. Dow component

Intel

(INTC) - Get Report

was gaining 1%, while rival

Advanced Micro Devices

(AMD) - Get Report

was up 3.1%.

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Bonds/Economy

Treasury notes and bonds are lower in quiet trading as the market continues to level after its accelerated run over the last two weeks. The latest commercial data further confirmed the fragile state of the economy. But such signs have been frequent of late and the money market has not taken much notice. It seems to be waiting for either a prolonged equities rally or another

Fed announcement before moving substantially either way. Yields for the notes and the long bond are up from their closing levels of yesterday.

The benchmark 10-year

Treasury note lately was down 12/32 to 104 27/32, raising its yield to 5.108%.

In other news, the

index of leading economic indicators

(

definition |

chart |

source

) showed a decline of 0.2% in November following on the 0.3% drop-off in the prior month. The year has so far seen six monthly periods of shrinking economic activity.

The

BTM-UBSW Weekly Chain Store Sales Index

(

definition |

chart ) rose 3.9% after three consecutive declines, benefiting no doubt from stronger holiday sales towards the end of the shopping season. The

Redbook Retail Average

(

definition |

chart ) has December sales running at the same level as in November.The latest

Mortgage Applications Survey

(

definition |

chart |

source

) release has been delayed by a day.

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International

European markets were strong after the end of the holidays. In London, the

FTSE

closed up 120.7 to 6218.2. Meanwhile, on the Continent near the end of the trading day, Paris'

CAC 40

was up 73.42 to 5857.15, while Frankfurt's

Xetra Dax

rose 75.66 to 6327.06.

Asia markets closed mixed. Hong Kong's

Hang Seng

rose 10.15 to 14748.36, while Tokyo's

Nikkei 225

lost 26.36 to 13981.49.

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