Updated from 4:10 p.m. EDT

Stocks ended higher Tuesday but trimmed some earlier gains following the Fed's assessment of economic weakness.

Volume was well above average, with trading on the Nasdaq hitting the 2-billion-share mark for the first time this year.

The Dow Jones Industrial Average rose 56 points, or 0.67%, to 8588, while the Nasdaq gained almost 20 points, or 1.3%, to 1524 -- its highest close since late November 2002. The S&P 500 climbed 8 points to 934.

The Federal Reserve kept interest rates unchanged at 1.25%, a 41-year low, saying the economic outlook is "weighted mainly toward conditions that may generate economic weakness." That kind of language often presages an easing, although the Fed also expressed confidence the economy will eventually turn around, leaving traders guessing about the future direction of rates.

"It was a classic market move: We got excited, bought on the rumor and sold on the news. Now investors are realizing the Fed might need to cut rates in June if the economy does not stabilize, which I certainly don't hope happens," said Art Hogan, chief market analyst at Jefferies & Co.

Lyle Gramley, senior economic advisor at Schwab Capital Markets, noted, "There was little inclination to put any stimulus in the economy at the moment, but Fed officials are aware that shocks might come along. On the other hand, there is no immediate concern about inflation, with the current economic indicators still quite weak."

Gramley said he believes that if the economy heads into another recession, the Fed might move aggressively with a cut of 50 basis points "to send a strong signal that it will do whatever is necessary to get the economy to turn around."

On the NYSE, 1.6 billion shares traded hands, with winners ahead of losers by a margin of more than two to one. Some 2.1 billion shares changed hands on the Nasdaq, with advancers outpacing decliners by three to two.

Credit Suisse Group ( CSR) reported a 77% rise in first-quarter profits with the help of higher earnings at its securities firm Credit Suisse First Boston and its insurance units. The Swiss bank has a slightly favorable outlook for full-year 2003 earnings. Credit Suisse shares climbed 2% to $24.35.

Retailer Home Depot ( HD), meanwhile, was upgraded at Goldman Sachs. Home Depot gained 2% to $29.36.

Kmart ( KMRTQ) emerges from Chapter 11 Tuesday after 16 months in which the retailer cut 60,000 workers, secured $2 billion in financing and nearly eliminated its debt. The company now faces the task of convincing investors it won't fall back into bankruptcy again.

EchoStar Communications ( DISH) posted a profit in the first quarter, after a loss a year earlier. Echostar shares rose 5% to $32.23.

Gillette ( G) posted a rise in first-quarter profit, with the help of cost cutting and stronger sales. Gillette shares were down 2% at $31.34.

Dell Computer ( DELL) is planning to replace stock options it awards to employees this year for regular cash bonuses, The Wall Street Journal reported. The company's shares finished up 3% at $30.45.

Alcoa ( AA) will buy Camargo Correa Group's 41% stake in Alcoa's South American operations it did not own, a deal valued at $410 million in stock. The purchase will be accretive, or add to earnings in the first year and will be completed by the third quarter. Alcoa shares gained 0.2% to $23.24.

AOL Time Warner ( AOL) was down 1.5% at $13.18 in premarket trading following news that Ted Turner has sold more than half his stake in the company, valued at about $789 million. AOL shares lost 0.8% to $13.28.

McData ( MCDT), a maker of storage network equipment, raised its outlook for first-quarter earnings and revenue, for the second time. The company expects to post profit of 5 cents a share, slightly above analysts' estimates and up from the 2 cents to 4 cents it had predicted in March. McData shares lost 1% to $9.96.

First-quarter earnings have increased some 14% so far for the 418 companies of the S&P 500 that have reported results, according to Thomson First Call.

Treasuries were higher, with the yield on the 10-year note down 9 basis points at 3.8%. Crude oil for June delivery was up 44 cents, or 1.9%, at $23.96 a barrel in London.

Overseas markets were mixed, with London's FTSE 100 up 1.1% at 3995 and Germany's Xetra DAX up 0.1% at 3015. In Asia, Japan's Nikkei closed 2.2% higher at 8083, while Hong Kong's Hang Seng lost 0.3% to 8889.

On Monday, the Dow ended 0.6% lower at 8531. The S&P 500 fell 0.4% to 926, while the Nasdaq was practically flat at 1504.