Updated from 4:08 p.m. EDT

Stocks slipped from their session highs in the last hour of trading Tuesday, but the major averages still finished with big gains as bargain-hunting and short-covering helped the market rebound from a period in which the Dow shed almost 700 points over three sessions.

The Dow closed with a gain of 230.46 points, or 2.9%, to 8274.09. The Nasdaq rose 53.54 points, or 4.4%, to 1259.55, and the S&P 500 added 24.97 points, or 3%, to 859.57.

For much of the day, McDonald's ( MCD), was the sole Dow component in negative territory, but by the close Coca-Cola ( KO) and SBC ( SBC) also were down.

There was a dearth of bad economic news, which had provided a downside catalyst in recent days. The rally follows three sessions in which the Dow forked over a combined 693 points and the Nasdaq dropped 122. Those results, which followed a 1,000-point rally at the end of July, enriched shorts but led to short covering Tuesday.

Semiconductor stocks, Internet issues and computer hardware names showed particular strength. The Philadelphia Semiconductor Index was up 6.2%, and TheStreet.com Internet Index rose 6.7%. The oil service sector and utility stocks also had solid days.

Advancing issues outpaced decliners roughly 7-2 on the New York Stock Exchange and the Nasdaq.

Some of Tuesday's optimism was attributed to expectations that Cisco ( CSCO) would pleasantly surprise the market with its quarterly results after the bell.

Cisco did beat earnings expectations by 2 cents after the close, but the networker's sales came in a little short of estimates. Cisco ended regular trading up 6.3% at $12.07.

Martha Stewart's account about what led her to sell about 4,000 shares of ImClone Systems ( IMCL) in December might be getting harder to swallow. A Merrill Lynch trading assistant told federal investigators that Stewart sold her shares of ImClone stock only after he advised her that members of CEO Sam Waksal's family were dumping the stock, according to The Wall Street Journal.

The Securities and Exchange Commission and the Justice Department have been investigating the possibility of insider trading by Stewart prior to an FDA decision to reject ImClone's drug Erbitux. Stewart previously stated that she had an agreement to sell the stock with her broker and has done nothing wrong.

Meanwhile, business-software company PurchasePro ( PPRO) confirmed that federal securities regulators have launched an investigation into its partnership with AOL Time Warner ( AOL). The company said it is cooperating with the SEC on the matter.

Separately, AOL named Jonathan Miller chief executive of its America Online Internet division. PurchasePro rose 3.5%, and AOL slipped 0.5%.

Among the companies reporting quarterly results, Emerson Electric ( EMR) said third-quarter earnings fell due to weak demand for its consumer electronics and telecommunications products.

The company posted net income of $282 million, or 67 cents a share, compared with earnings of $330.4 million, or 77 cents a share, in the year-ago quarter. Excluding one-time items, the company earned $297 million, or 70 cents a share, a penny shy of analysts' expectations. Emerson's shares rose 1.5% to $44.93 on the news.

In the drug sector, Cephalon ( CEPH) posted second-quarter earnings that beat analysts' expectations, thanks to strong sales of its Provigil drug, a treatment for drowsiness. The company also raised its earnings forecast for 2002. Shares tacked on 2.7% at $44.07.

Elsewhere, homebuilder Toll Brothers ( TOL) said preliminary revenue came in at $565 million, or about 1% lower than its year-ago mark. The results nevertheless topped expectations. Toll added 8% to $22.17.

A big merger was announced in the food industry, with Nestle revealing plans to acquire privately held Chef America, which makes microwaveable products such as Hot Pockets, for $2.6 billion in cash and debt. Nestle's move is designed to strengthen its position in the U.S. frozen food market.

Standard & Poor's revised its outlook on telecommunications-equipment maker Lucent ( LU) to negative from stable, citing challenging market conditions, high debt levels, and increasing uncertainty as to the company's ability to return to profitability. Despite S&P's move, the battered shares of Lucent climbed 3% to $1.60.

U.S. Treasury issues were lower around 4 p.m. EDT. The 10-year note was down 30/32 at 104 7/32, yielding 4.328%. The long bond was down 1 2/32 to 102 3/32 and yielding 5.233%.

In Europe, London's FTSE 100 gained 3.4% at 4131, while Germany's Xetra DAX rallied 7% to 3569. Japan's Nikkei 225 fell 2.1% to 9501, and Hong Kong's Hang Seng closed down 1.6% to 9701.