Updated from 4:08 p.m. EST

Stocks ended higher Thursday in jumpy trading, as investors kept an eye on reports of escalating fighting in Iraq.

After being down 100 points in the morning and then up 50 points in the afternoon, the

Dow Jones Industrial Average

closed up 21 points, or 0.3%, at 8286, while the

Nasdaq

added 5 points, or 0.4%, to 1402. The

S&P 500

gained 1 point, or 0.2%, to 875.84.

For a rundown of the day's corporate stories, click here.

Afternoon media reports said the war in Iraq had intensified, with Iraq coming under heavy fire from U.S. forces -- although American military officials were quick to say that full-scale war hadn't begun yet. The explosions in Iraq came in the wake of reports that Saddam Hussein may have been wounded in Wednesday's missile attacks, which helped lift markets from their early lows.

Thursday's volatility left investors with a big question on their minds: Is the war rally over or yet to come?

Some market watchers speculated that Thursday morning's pullback could be a sign that the rally had ended. The most widely held opinion has been that the war in Iraq would be quick and decisive, which had been priced into the market over the last week, some said.

"We may have just peaked out with this recent rally. It's really hard to quantify how much we can move from here. I'd rather call it a trading range between 500 and 1,000 points in either direction," said James Park, a senior vice president of equity trading at Brean Murray Foster Securities. "This is too hard to handicap. Just look at the

Fed

comments -- even they don't want to go out on a limb."

As a result, traders said the markets are highly susceptible to headline news. Any positive news that would indicate a quick end to the war, like the death of Saddam, could boost stocks, but the opposite is also true -- any war setback could cause shares to swing lower.

James "Rev Shark" De Porre, columnist for our sister site

Real Money

, agreed that markets will react emotionally to the latest war news, but was a little more optimistic about Thursday morning's fall, calling it "just some healthy profit-taking." He added, "I wouldn't be too quick to think this market is going to roll over and go straight down." But he also noted that people who are short the market will have to cover their bets quickly if positive news develops. "The shorts are still very nervous about surprise good news about the war. The shorts' worst nightmare is to wake up to news that we got Saddam," he said.

Other traders agreed, but noted some caution. "Everything is going smooth and as long as that continues, then market will continue to rally. I'd like to think that war is quick and to our benefit and will be wrapped in two to three weeks," said Tom Schrader, a trader at Legg Mason, who added that even if the war rally were to continue, stocks could face some pressure once people start eyeing the economic outlook. "Investors are not thinking about the economy now, but there are uncertain signs going forward. An economic turnaround won't be immediate after the war. That's the next hurdle investors really need to be looking at."

Meanwhile, White House spokesman Ari Fleischer confirmed at midday that oil-well fires were burning in Iraq. After a brief spike in the price of crude oil, futures for June delivery were off $1.27 at $27.27 a barrel. The 10-year Treasury note was up 5/32, yielding 3.97%, while gold was off $1.20 at $333 an ounce. The dollar was firmer against the euro and yen.

Overseas markets ended mixed, with London's FTSE 100 closing up less than a point at 3765 and Germany's Xetra DAX ending down 0.4% at 2605. Asian markets ended higher, with Japan's Nikkei closing up 1.8% at 8195, while Hong Kong's Hang Seng ended up 0.4% at 9194.

The latest news reports said that American forces had taken control of the town of Umm Qasr in Iraq. Also,

CNN

said that intense shelling of Baghdad had triggered large fires in the city.

U.S. forces launched the first stage of their attack on Baghdad Wednesday night -- prompting retaliatory fire by Iraqis -- and Bush signaled that more substantial strikes would be coming soon. That initial attack -- smaller than the "shock and awe" campaign of firepower that the Bush administration had indicated would begin the war -- was reportedly an effort to kill Saddam or other senior members of the Iraqi leadership.

Bush, in an address from Washington Wednesday night, said the "early stages of military operations to disarm Iraq" had begun. "Coalition forces are striking targets of military importance," he said. Bush reportedly ordered the attack on Baghdad after American officials received reports that suggested senior Iraqi leaders were gathering for a meeting. The president spoke a couple of hours after the expiration of his 48-hour deadline for Saddam to leave Iraq.

Early Thursday morning,

CNN

carried a videotape of what appeared to be a defiant, rambling Saddam in military dress calling for Iraqis to draw their swords and overcome the "shameful crime" committed by the U.S. and its "Zionist" allies. "Long live jihad and long live Palestine," he said.

Meanwhile, Bush said in reference to the U.S. military Wednesday night, "The peace of a troubled world and the hopes of an oppressed people now depend on you." He added, "In this conflict, America faces an enemy that has no regard for conventions of war or rules of morality ... coalition forces will make every effort to spare innocent civilians from harm."

In Iraq, people heard on the radio from Saddam's son Uday: "God protects us from foreign aggression," he said.