Those market participants skeptical about the sustainability of Monday's advance got a rude awakening Tuesday.

The bears' worst fears might not have materialized, but the major averages still sidestepped some hurdles to close at session highs amid rising, though subdued, volume.

Stock proxies overcame early hesitation and were solidly, if unspectacularly, higher at noon EDT despite another round of lackluster economic reports, cautious guidance from

General Motors

(GM) - Get Report

and

Novellus Systems

(NVLS)

, a warning by

HCA

(HCA) - Get Report

, and concerns about growth prospects at

Johnson & Johnson

(JNJ) - Get Report

.

"The key here is the

Philadelphia Stock Exchange Semiconductor Index shrugging off the Novellus numbers from last night," one market participant and longtime reader observed midday. You're "going to get a bounce from the very short-term shorts who put the negative trade on

Monday after hours and before the open today in anticipation of the SOX tanking

because of Novellus. They should be regurgitating their shorts -- and their lunch -- any time now."

But any boost from short-covering (or any other reason), was delayed until the final hour as major averages struggled to stay above break-even midafternoon Tuesday.

After trading as high as 8398.51 at lunchtime on Wall Street, the

Dow Jones Industrial Average

retreated and then flip-flopped around break-even before rallying in the final hour to close up 0.6% to 8402.36. Following similar patterns, the

S&P 500

ended up 0.6% to 890.81, and the

Nasdaq Composite

higher by 0.4% to 1391.01. Meanwhile, the SOX closed up 0.7% to 307.87 vs. its apex of 311.77.

The S&P closed above its 200-day moving average for the second-straight session, as did the Dow, the first time that's occurred in over a year, according to

RealMoney.com

contributor Dan Fitzpatrick. Additionally, the Dow Jones Transportation Average gained 3.8% to 2316.82, eclipsing its 200-day moving average at about 2264.

As was the case Monday, the significance of the advance was somewhat undermined by an absence of stellar volume. A bit nore than 1.4 billion shares traded on the

Big Board

, vs. 1.1 billion on Monday, while advancers led 21 to 11.

Some explanations for the short-lived afternoon dip included more hawkish comments from Defense Secretary Donald Rumsfeld. A day after saying Syria has conducted chemical weapons tests in the past 15 months and accusing Damascus of allowing Baath party members to flee into Syria and terrorists into Iraq, Rumsfeld said Tuesday that allied forces have shut off an oil pipeline between Iraq and Syria.

Earlier, President Bush made his first public concessions regarding the size of a tax package currently being debated in Congress. Speaking from the Rose Garden, Bush urged Congress to pass "at least $550 billion" of "pro growth" measures rather than the $726 billion he originally proposed.

The lowered figures reflect the reality in Congress, where the House passed a budget resolution calling for $550 billion in tax cuts while Senate Finance Committee Chairman Charles Grassley (R., Iowa) pledged late Friday to limit any tax cut to $350 billion. (More on this in a forthcoming column.)

Outside of geopolitics, there were plenty of other seemingly logical reasons for shares to decline. On the economic front, the government reported industrial production fell 0.5% in March, more than double the expected drop and the biggest decline since last December. Capacity utilization fell more than expected to 74.8, the lowest level since December 2001.

Separately, the New York Fed's Empire State Manufacturing survey for April fell to negative 20.4, the lowest level since October 2001.

Despite strength in equities, the weak data gave Treasuries a boost. The price of the benchmark 10-year note rose 14/32 to 99 8/32, its yield dropping to 3.96%.

There remains a sense among equity traders that the current round of economic data are either lagging indicators or unduly dampened by war and weather. As discussed here

Monday, the notion of a second-half recovery remains very much intact. Once again, such sentiments were encouraged by

Federal Reserve

officials.

"What impresses me about the current situation is how well the economy has handled severe shocks," St. Louis Fed President William Poole said Tuesday. "That more favorable economic conditions will come is my optimistic message."

Poole could not say "when more rapid growth will appear" but argued that "productivity data, rather than just a gut feeling, justify an optimistic long-term outlook."

The New Economy is dead, long live the New Economy!

Not All Bad

Of course, there were some more obviously positive elements at work, including reiterated guidance from

IBM

(IBM) - Get Report

and optimism about prospects for union concessions at

AMR

(AMR)

subsidiary American Airlines; the pilots union ratified the deal but the flight attendants later rejected it. Additionally, Bank of Tokyo-Mitsubishi reported a 1.3% rise in weekly same-store sales data.

Another positive was strength in truckers such as

Yellow

(YELL)

,

J.B. Hunt Transport Services

(JBHT) - Get Report

, and

Roadway

(ROAD) - Get Report

following a string of better-than-expected earnings from big names in the sector.

Indeed, optimism about first-quarter earnings is buttressing the market here despite some legitimate concerns about the macroeconomic picture.

"Everyone planned on the first-quarter being so awful

and my guess is first-quarter earnings are not going to be a catalyst for a downside move," said Art Hogan, chief market strategist at Jeffries. "The real focus is on what corporate America is willing to say about the second half, and so far companies like

General Electric

(GE) - Get Report

and IBM are relatively upbeat."

GM was a disappointment, but "few expected the auto industry to do well," Hogan said. "So far, so good."

If the postclose reaction is any indication, the optimism could find more fuel in earnings releases from tech bellwethers

Microsoft

(MSFT) - Get Report

,

Intel

(INTC) - Get Report

and

Texas Instruments

(TXN) - Get Report

.

Microsoft's quarterly results bested expectations but the software giant offered guidance for fiscal 2004 of $1.04 to $1.06 per share vs. the consensus estimate of $1.08. The shares nevertheless tacked on almost 5% in after-hours Instinet trading.

Intel posted earnings 2 cents ahead of consensus and posted top-line results in line with expectations. Its shares were up 5%.

Texas Instruments reversed a year-ago loss to post better-than-expected earnings and projected second-quarter revenues will rise about 7% with earning around 8 cents per share. Its shares jumped 5.5% in the late session.