To say the market was volatile this week would be an understatement.

After plunging 4% on Monday to a five-year low, the

Nasdaq jumped 5% on Friday as investors celebrated the passing of a mostly quiet Fourth of July holiday.

Fears of a terrorist attack, prompted by a vague warning from the FBI, had kept investors on edge earlier in the week, sending the

S&P 500 to a 4 1/2 year low and the

Dow industrials below 9000. But as the holiday went off without incident (a shooting at Los Angeles International Airport apparently isn't enough to shake investors these days), the market managed to recoup most of its losses.

"People were nervous about what might happen and now there seems to be a bit of relief," said Tom McManus, equity analyst at Banc of America. "All of those emotions were probably more than what is justifiable in any fundamental analysis."

After Friday's explosive rally, the Nasdaq ended the week down just 1% at 1448 while the Dow actually ended up 1.4% to 9379. The S&P 500 was practically unchanged at 989.

No Accounting for the Numbers

Of course, it wasn't just worries about terrorism that upset the market earlier in the week -- accounting scandals also played into the initial weakness.

After being halted for trading for three market days,

WorldCom

(WCOME)

finally opened Monday and promptly fell 90% to 6 cents a share. The disgraced telecom giant admitted last week to overstating earnings before interest, taxes, depreciation and amortization by $3.8 billion over the last five quarters.

Then on Tuesday, media giant

Vivendi

(V) - Get Report

plunged 21% after French newspaper

Le Monde

said regulators had disagreed with Vivendi's proposed accounting treatment for a transaction it engaged in last year related to its disposal of a stake in European satellite firm

British Sky Broadcasting

.

The paper also reported that Chief Executive Jean-Marie Messierborrowed 25 million euros from the company two years ago to buy VivendiUniversal shares, without informing the board. Messier ultimately resigned under pressure from the board.

Still, the market began to recover Wednesday in the face of yet more bad news. Although

i2 Technologies

(ITWO)

and

OpenWave Systems

(OPWV)

sliced their profit estimates and

Advanced Micro Devices

(AMD) - Get Report

cut its quarterly sales forecast for the second time in two weeks, the major averages advanced nicely.

WorldCom was among the biggest gainers, soaring 150% aftertelecommunications firm

IDT Corp.

(IDT) - Get Report

offered to buy some of the firm's assets. Granted, the stock still trades for mere pennies a share.

The rally gained momentum on Friday, with the Dow up a whopping 324points, or 3.5%. The Nasdaq soared 68 points, or almost 5%, and the S&P 500 added 35 points, or 3.6%. Of course, the session was only a half day, so many observers will be watching the early part of next week to determine if buyers really do like the market at these levels.

The gains were particularly interesting given the fact that grocerychain

A&P

(GAP)

said it would restate results forthree years, while

The Wall Street Journal

reported that the Justice Department has launched a criminal investigation into

Qwest

(Q)

. Both stories had little impact either on the individual stocks or on the market as a whole.

Crying Uncle?

With an estimated $19 billion in net equity fund outflows during the month of June and roughly $10 billion in net redemptions over the past nine trading days, some analysts are speculating that the market has finally capitulated. But others said Friday's rally wasn't indicative of a change in direction and that it was simply an overreaction, just as investors overreacted to the downside prior to the holiday.

"To breathe a sigh of relief is premature," McManus said. "The onething that is constant before and after the holiday is earnings numbers."

Second-quarter estimates have been cut only marginally in recent weeks, as double-digit percentage point cuts in technology, transports and utilities have been offset by increased estimates for energy and cyclicals, according to Thomson Financial/First Call.

However, third-quarter numbers have been revised down sharply. Since April 1, S&P 500 estimates for the third quarter have been cut 5 percentage points, the research firm said.

Meanwhile, the economic data continue to be mixed. Themanufacturing sector grew for a fifth straight month in June and exceeded economists' expectations, while factory orders rose 0.7% in May, the third increase in a row and the fifth this year. Still, construction spending fell 0.7% in May, below expectations for an increase of 0.1%.

Initial jobless claims for the week ended June 29 fell to 382,000,below economists' estimates, but the unemployment rate rose to 5.9% in June as firms added just 36,000 workers to their payrolls, according to the Labor Department.

"There's just no way this economy is recovering as strongly as people want to believe," McManus said.