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Flat Day for Stocks

Nasdaq and S&P 500 manage tiny gains following big rally Monday.

Updated from 4:03 p.m. EST

Stocks finished mostly higher Tuesday, with the


remaining above the 2000 level, after closing above the milestone Monday for the first time since January 2001. All three major averages finished above or close to their closing highs of 2003.



fell 24.96 points, or 0.2%, to 10,425.04, after touching a 21-month high Monday; the

S&P 500

rose fractionally to 1109.64, a 20-month closing high; and the Nasdaq Composite gained 3.40 points, or 0.2%, to 2009.88, a new 23-month closing high. All three indices traded in very narrow ranges.

Volume was very light heading into the final day of the year; 978 million shares traded on the

New York Stock Exchange

, while 1.54 billion shares changed hands on the Nasdaq. Advancers beat decliners by about 5 to 4 on both exchanges.

In economic news, the Conference Board's consumer confidence index was marginally weaker than expected at 91.3 in December, down slightly from 92.5 in November.

David Greenlaw, U.S. economist at Morgan Stanley, pointed out that "the expectations index moved to its highest reading in 18 months as the outlook for the labor market registered modest improvement."

The Chicago Purchasing Managers' Index also fell short of expectations, falling to 59.2 in December from 64.1 last month.

Finally, existing-home sales fell to 6.06 million units in November from 6.35 million in October; economists had expected a slight decline to 6.33 million.

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"While the peak pace of activity may now be behind us, real estate markets remain strong from a longer-run perspective," said Greenlaw.

"The headline

economic numbers looked a little weak, but if you dissect the figures, on the PMI for example, we are still in a growth condition," said Peter Cardillo, chief strategist at Global Partners Securities. Despite the downtick, "consumer confidence expectations are still pretty strong."

Small-Cap Outlook

Small-capitalization stocks are among the year's biggest winners; the Russell 2000 is up over 47%, almost twice the Dow's gain. A confluence of factors contributed to the strong performance of small-caps, including low interest rates, more attractive valuations and less investor risk aversion. Several strategists believe the group will continue to lead the way.

"Typically, when an economy comes out of recession and into growth, small-caps will do better than large-caps," said Cardillo. "Their balance sheets put them in a better position to take advantage," of any upswing.

Stephen DeSanctis, director of small-cap research at Prudential Securities, believes the group was particularly hard-hit during the bear market of the past few years.

"When we got to the March lows, small-caps had more attractive valuations and depressed prices," he said. "It is kind of like a spring that is ready to pop; small-caps were just wound tighter."

Cardillo, along with Juliet Ellis, a small-cap portfolio manager at J.P. Morgan Fleming Asset Management, believes the group will put in another solid year. Ellis said, "bottoms-up analysis indicates 28% earnings growth next year for the S&P 600, compared with 13% for large-cap stocks; this suggests a return potential in the high 20% range for small-caps."

But DeSanctis believes small-caps have little upside left. "I am calling 2004 the year of transition; valuations aren't as attractive for small-caps and I would expect leadership to shift to the larger-capitalization stocks."

Even Ellis concedes that "interest rates are the biggest risk to the 2004 outlook." Small-cap stocks are more sensitive to fluctuations in interest rates given their greater reliance on borrowed funds than larger companies.

Other Markets

Overseas markets finished higher, with London's FTSE 100 up 0.3% to 4470 and Germany's Xetra DAX up 0.3% to 3965. In Asia, Japan's Nikkei closed up 1.7% at 10,678, while Hong Kong's Hang Seng added a half-percent to 12,527.

In the currency markets, the dollar was slightly stronger against the Japanese yen, and down vs. the euro to $1.2548, close to its all-time low vs. the European currency.

The 10-year Treasury bond lost 6/32, its yield rising to 4.27%.



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announced plans to purchase privately held Kinko's for $2.4 billion. FedEx shares dipped $1.03, or 1.5%, to $68.91.


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shares surged $3.27, or 12.3%, to $29.77, following a


report that

Micron Technology

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was on the verge of admitting it took part in a price-fixing scheme with three other semiconductor makers, which may help Rambus resolve its own legal problems in the case.

General Motors

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was edging higher after Bear Stearns raised its price target to $60 from $51 and said the automaker should earn $1.23 a share in 2004, not the $1.13 it previously predicted. GM slipped 15 cents, or 0.3%, to $53.55.


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was also higher after it said sales in the week ended Dec. 27 were tracking toward the high end of its plan. Still, the company sees same-store sales for all of December at the low end of guidance, although gift-card sales were strong throughout the holiday. Target lost 27 cents, or 0.7%, to $38.38.



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was perking up after the company received a fighter-jet contract from the Navy that's worth about $9.6 billion. The shares improved 28 cents, or 0.7%, to $42.28.

Looking ahead to the final day of 2003, initial jobless claims for the week ended Dec. 27 is the only economic release of note. Economists expect claims to fall slightly to 350,000 from 353,000.