Once again, trading volumes were light ahead of tomorrow's first anniversary of Sept. 11. But once again, stock proxies managed solid gains although the rally was temporarily disrupted by reminders that terrorist threats remain a concern.

The

Dow Jones Industrial Average

closed up 1% to 8602.61 after having traded as low 8502.32. Similarly, the

S&P 500

rallied 0.7% to 909.58 vs. its earlier low of 900.51 while the

Nasdaq Composite

gained 1.2% to 1320.09 after having traded as low as 1299.03.

The early afternoon lows occurred after the government raised its terror threat assessment to "high."

Conversely, Treasury securities rallied thereafter, with the price of the benchmark 10-year note ending up 17/32 to 103 3/32, its yield dipping to 3.99%.

In a press conference early Tuesday afternoon, Attorney General John Ashcroft said the threat of a 9/11 anniversary attack comes from al Qaeda sources and that there was evidence of potential suicide attacks against U.S. interests abroad.

Later, President Bush described the intelligence the government has received as similar to that obtained prior to the attacks on Sept. 11, 2001. "We have no specific threat to America, but we're taking everything seriously," Bush said.

To a man (and woman), Wall Street participants say the significance of the anniversary of Sept. 11 is a personal one and has little or no impact on trading. Concerns to the contrary are just media speculation, they say.

"I don't think 9/11 bears a tremendous amount of significance beyond what happened," said Michael Driscoll, director of listed trading at Bear Stearns. "I think a lot of it is coming from the media, rehashing it, showing the images, the towers coming down. It's very upsetting to live it over again just when you're starting to move on again,

but in terms of what it means for the stock market, who cares? It doesn't matter what the stock market does, it pales in comparison."

Yesterday's advance and the early action Tuesday support the notion that the Sept. 11 commemorations were having little deleterious effect on stocks. If anything, some argued that stocks were rallying in a show of defiance and/or

patriotism.

However, the market's reaction to the government's announcement demonstrated how traders remain on edge, which is certainly understandable.

"People are talking about getting through tomorrow," Driscoll said. "We live with enough stresses and anxieties without this crap."

That said, the trader observed "most in the hedge fund community are long" heading into tomorrow's session, for which trading is scheduled to start at 11 a.m. ET due to a memorial service at Ground Zero. "The expectation is nothing will happen, and when that becomes apparent, stocks will lift."

Others recalled that stocks rallied sharply on July 5 after the Independence Day holiday passed without incident.

Early on, shares rallied despite a steep drop in shares of

Genentech

(DNA)

, which announced

disappointing trial results for its experimental cancer drug, Avastin, and

Nokia's

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cutting of its third-quarter sales guidance. Genetech slid 9.7% while Nokia lost 2.2%.

Helping boost major averages early on were upbeat guidance from

Ford

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, which rose 1%, and

DaimlerChrysler

(DCX)

, which gained 4.3%; reaffirmation of guidance by

United Technologies

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, which rallied 3.5% and was the single biggest positive influence on the Dow; and a stronger-than-expected September retail sales report by Instinet's Redbook.

Major averages also overcame some potentially unsettling news,including new reports of Osama bin Laden's knowledge of and reaction to the Sept. 11 attacks, the closure of U.S. embassies in Malaysia and Indonesia due to threats, and the U.S. Navy's warning about possible al Qaeda attacks on oil tankers in the Persian Gulf. There's also the ongoing debate about potential war with Iraq, for which President Bush is expected to make a case before the U.N. on Thursday.

Trading volumes remained thin, contributing to the market's intraday swings, although they were up from yesterday. Nearly 1.2 billion shares were exchanged on the Big Board, where advancing stocks led decliners 17 to 13. About 1.3 billion shares traded in over-the-counter activity, where advancers led 17 to 15.

SOX Rocks

Semiconductor stocks perhaps best embodied the broader markets resilience to -- some would say ignorance of -- today's geopolitical developments and underlying fundamentals.

The Philadelphia Stock Exchange Semiconductor Index rallied 3.6% to 298.34, after trading as high as 304.09.

Intel

(INTC) - Get Intel Corporation (INTC) Report

, which rose 2.7% issued some comments about new technologies boosting chip speeds, while

Hewlett-Packard

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announced development of a chip that is super small and fast.

Such announcements, and comments by Prudential Securities about Intel's capital expenditures, raised hopes for future chip-equipment spending. But the day's news also included a warning but the news also included a warning by

ATI Technologies

(ATYT)

. However, ATI's shares rallied 6.4% and those of its main rival

Nvidia

(NVDA) - Get NVIDIA Corporation Report

, jumped 15%.

To cynics, today's chip advances echoed the myriad sharp and short-lived rallies in the sector that have occurred since March 2000, most recently in August. That is, they are based on flimsy fundamentals and most likely to fail.

"We believe that the semiconductor industry faces a reduction in its long-term growth prospects, not just because of the uncertain economic outlook, but because of much more saturated end-market opportunities for integrated circuits to penetrate," according to a report last week by John Skeen, director of portfolio strategy for Banc of America Securities and chip analyst Mark Fitzgerald. "We believe that there is significant risk that investors' attention will shift from concerns about the cyclical slowdown towards a focus on this expected lower secular growth rate."

Skeen and Fitzgerald expect cuts of 15% to 25% for 2003 consensusestimates for the industry, and forecast the SOX will "find a bottom 30% below" its recent levels.

Similarly, skepticism remains high about the broader market's ability to sustain a rally, as summarized by this email from a reader: "You'd have to be insane to buy this low-volume rally in the midst of the historically worst month of the year in the midst of an entrenched bear market

with at least a few upcoming earnings misses/warnings, even if there were no 9/11 (if only)."

Faithful readers of this column know my fundamental position is abearish one. But a contrarian view suggests that if that reader embodies the prevailing attitude, then it's time to buy shares, if only for a short-term trade.

The past two days suggest many on Wall Street agree.

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.