Traders have come to expect the unexpected, but Tuesday's session was pretty much muddling along as advertised -- until about 3 p.m. EST, that is. In the final hour of trading, a decidedly listless advance took a marked turn higher, evoking the old saying: "Never short a dull market."

When all was said and done, the

Dow Jones Industrial Average

was up 1.2% to 8574.26 after having traded as high as 8578.99. The

S&P 500

was up 1.4% to 904.41, closing a fraction below its apex, while the

Nasdaq Composite

was higher by 1.7% to 1390.50 after having traded as high as 1397.80.

As some predicted, stock proxies rallied early in the session following

Monday's thrashing, the sixth decline in the past seven trading days. As was more uniformly anticipated, the

Federal Reserve

left the fed funds rate unchanged at 1.25%, and said little to indicate its view of the economy has changed since its last policy meeting.

"The Committee continues to believe that

its accommodative stance of monetary policy, coupled with still robust underlying growth in productivity, is providing important ongoing support to economic activity," the Federal Open Market Committee's statement read. "The limited number of incoming economic indicators since the November meeting, taken together, are not inconsistent with the economy working its way through its current soft spot." (In other words, the Fed isn't too worried about Friday's dour employment report, at least not publicly.)

Stock proxies rallied in the aftermath of the Fed's announcement at 2:15 p.m. EST, but gains moderated soon thereafter before a late-day rally pushed proxies to session highs. Overall, the market's reaction to the FOMC was limited. Even the movement of U.S. Treasuries was relatively constrained, with the price of the benchmark 10-year note ending down 4/32 to 99 19/32, its yield rising to 4.05%.

Similarly, traders reported limited activity due to news President Bush nominated Donaldson Lufkin & Jenrette co-founder William Donaldson to be the next chairman of the

Securities and Exchange Commission

. Nor did rumblings about political obstacles to the presumptive appointment of former Goldman Sachs co-head Stephen Friedman as White House economic policy adviser materially affect trading.

It was another relatively quiet trading session. In

NYSE

activity, 1.26 billion shares were exchanged, the sixth-straight session below the six-month average, according to

Bloomberg

. In Nasdaq trading, nearly 1.5 billion shares traded.

The gains, particularly the S&P rallying back above 900, indicate to optimists that the decline that began the day after Thanksgiving has run its course. Bulls hope the much-anticipated year-end rally has gotten under way, owing to confidence in President Bush's new economic team and stimulus package, or merely due to seasonal factors.

However, there certainly remains a healthy dose of skepticism about the market's fate among many participants.

"Our tactic remains one of holding our existing short positions, waiting for the completion of the next short-term advance phase for a chance to add more short positions," Phil Erlanger of Erlanger's Squeeze Play, and formerly head of technical analysis at Fidelity Investments, commented Tuesday morning.

Erlanger observed the CBOE Nasdaq Volatility Index rose just 1.3% Monday even as the Nasdaq 100 tumbled 4.8%. This is evidence of too much complacency and a lack of fear among investors, he wrote, arguing there has also been, in general, too much call-buying.

"We expect to see more put activity before the next meaningful low," he wrote. "Until such time, short-term advance phases will be unrewarding and diminutive."

On Tuesday, the VXN fell 2.3% while the NDX gained 1.8%. Meanwhile, the CBOE Market Volatility Index (or VIX) shed 8.1% to 32.67 and the CBOE equity only put/call ratio fell to 70% from 72% Monday and vs. reading in the high 80%-low 90% range much of last week.

Of Factory Orders and Company News

On the macro front, stocks were aided by the Institute for Supply Management's semiannual survey of purchasing managers, who said they expect capital expenditures to rise 4.6% in 2003. In May, survey respondents forecast an 8.7% decline in spending for 2003, so Tuesday's report shows an improvement in sentiment, if nothing else.

On the downside, the Commerce Department reported wholesale inventories fell 0.3% in October, the first decline since April and vs. expectations for a 0.2% increase. Moreover, sales fell 0.1% in October, a second month of declines after September sales were revised downward to a decline of 0.2% from a gain of 0.2% originally. The data suggest businesses are wary of stockpiling goods because demand is sluggish. However, the inventory-to-sales ratio fell to 1.22 months in October, matching August's record low and indicating production will have to be increased following even a modest upturn in sales.

In company news, wireless names were hit by lowered revenue guidance from

Nokia

(NOK) - Get Report

, which fell 3.3%.

Abbot Labs

(ABT) - Get Report

shed 2.6% following a Morgan Stanley downgrade, while homebuilders such as

K.B. Home

(KBH) - Get Report

, down 2.3%, were hit by a story in

The Wall Street Journal

about generous incentives for first-time homebuyers. The S&P Homebuilding Index slid 0.7%.

Meanwhile, the IPO for

Seagate

, slated for pricing after the close, was reportedly generating lackluster demand. Still, underwriters were able to price 72.5 million shares of the disk-drive maker at $12 per share vs. the expected range of $13 to $15.

More positively,

Avon Products

(AVP) - Get Report

lifted earnings guidance while

Merck

(MRK) - Get Report

,

Unisys

(UIS) - Get Report

and

Amazon.com

(AMZN) - Get Report

reaffirmed guidance for next year's earnings, fiscal 2002, and fourth-quarter revenues, respectively.

Overall, much of the buying activity was focused on big-cap semiconductor names such as

Intel

(INTC) - Get Report

and

Applied Materials

(AMAT) - Get Report

, as well as smaller telecom plays such as

Nortel

(NT)

and

Broadwing

(BRW)

, the latter after securing a $200 million financing deal with Goldman Sachs. The Philadelphia Stock Exchange Semiconductor Index rose 5%.

Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to

Aaron L. Task.