Updated from 4:04 p.m. EDT

Afternoon reports of violence in Iraq sent the markets lower Tuesday, but blue-chip stocks held modest gains as increased consumer confidence mixed with positive earnings releases to inspire some buying.

The Dow Jones Industrial Average closed up 33.43 points, or 0.32%, to 10,478.16 after being up as high as 10,537.35 earlier. The S&P 500 finished with a gain of 2.58 points, or 0.23%, to 1138.11. It peaked earlier at 1146.86. Those two indices outperformed the Nasdaq Composite, which ended down 4.24 points, or 0.21%, to 2032.53. The 10-year Treasury note traded up 9/32 in price, yielding 4.40%, while the dollar was higher against the yen and lower against the euro.

In an active session, more than 1.5 billion shares traded on the New York Stock Exchange, where advancers edged out decliners by about 5 to 4. On the Nasdaq, over 1.9 billion shares changed hands, and decliners held a tiny majority.

Multiple explosions shook the Iraqi town of Fallujah, according to the Associated Press, as a U.S. AC-130 gunship hammered targets in the city. Blasts and gunfire went on steadily for more than half an hour in sustained fighting, apparently in the northern Jolan district, a poor neighborhood where Sunni insurgents are concentrated.

" The Iraq war is another uncertainty that the market doesn't need at this time, along with concerns over interest rates and terrorism and so forth," said Robert Pavlik, portfolio manager at Oaktree Asset Management. "It certainly doesn't bode well for stocks.

"I think people were just moving over towards the cyclical side of the market today," he added. "They probably figure that with the prospects for more growth, these are the types of companies they want to align themselves with, rather than tech stocks that had their big run last year."

Paul Nolte, director of investments at Hinsdale Associates, said the session's divergence between the Dow and the Nasdaq is consistent with recent trends. "The Nasdaq has been strong for the last couple of weeks relative to everything else, and so I think what we're seeing now is nothing more than a break in the action," he said. "The broad market is really closer to being oversold than overbought, so this looks like just a relief rally here.

"The small-cap area is the only space that's underperforming the market, and that's continuing the theme that we've seen most of this month," he added. "Investors are rotating more to the big-cap names."

The market had jumped in the morning after the release of two economic reports. The Conference Board's consumer confidence index rose to 92.9 in April, beating consensus estimates which said the index would remain unchanged from March at 88.5. Also, existing homes sales in March came in above expectations at an annualized rate of 6.48 million, up from an upwardly revised 6.13 million in February. Economists had predicted the figure would be lower, at 6.2 million.

"Today, we seem to be shifting back to accepting good news for what it's worth," said Arthur Hogan, chief market analyst at Jefferies. "At some point in time, we have to rationalize that the Fed's going to tighten and it's not going to cripple the economy or put a stop to corporate earnings growth."

Among the winning sectors, the S&P Retail Index closed up 1% after setting a new 52-week high following the upbeat news about consumer confidence going into the summer shopping season. Individual retail stocks hitting new highs for the year included Limited Brands ( LTD), up 1.8%; J.C. Penny ( JCP), up 0.4%; and Brookstone ( BKST), up 1.3%.

Elsewhere, the Philadelphia Oil Services Index jumped 3.2% after OPEC President Purnomo Yusgiantoro, said the petroleum cartel is weighing whether to increase its 4-year-old price range for a barrel of crude from its current $24 to $28 range.

Early earnings reporters Tuesday included ImClone Systems ( IMCL), which blew away analysts' estimates on strong shipments of its cancer drug Erbitux.

ImClone earned $62.7 million, or 76 cents a share, in the latest quarter compared with a loss of $34.8 million, or 47 cents a share, last year. Analysts had been expecting earnings of 17 cents a share in the most recent quarter. Its shares closed down $3.15, or 4.3%, at $69.94.

Lockheed Martin ( LMT) said first-quarter profits rose 16% and raised its outlook for 2004. The nation's largest defense contractor earned $291 million, or 65 cents a share, compared with $250 million, or 55 cents a share, in the same quarter last year. Analysts were expecting earnings of 53 cents a share. For the year, the company expects to earn between $2.50 and $2.60 a share, up from its earlier forecast of a range of $2.40 to $2.50 a share. Its shares closed up 38 cents, or 0.8%, to $46.88.

Chemical giant DuPont ( DD) earned $668 million, or 66 cents a share, in the first quarter, up from $535 million, or 53 cents a share, last year. Operating earnings came in at 96 cents a share, a penny better than expected. Its shares lost 47 cents, or 1%, at $44.52.

Verizon's ( VZ) first-quarter earnings fell by more than half, weighed down by charges for employee buyouts, its pension program and investment-related expenses. The company earned $1.2 billion, or 43 cents a share, in the latest quarter compared with earnings of $2.4 billion, or 87 cents a share, last year. The company earned 58 cents a share before items, a penny ahead of expectations. Its shares closed down 24 cents, or 0.6%, at $37.50.

Conexant Systems ( CNXT) reported Monday after the bell a wider second-quarter loss due to charges related to its merger. The loss totaled $143.4 million, or 41 cents a share, compared with a year-earlier net loss of $68 million, or 26 cents a share. Its stock dropped 81 cents, or 14%, to $4.96.

In other corporate news, United Health Group ( UNH) agreed Monday to acquire Oxford Health Plans ( OHP) for $4.9 billion. Shares of United closed up 62 cents, or 1%, at $64.52 on Tuesday's session, while Oxford shares jumped $1.31, or 2.4%, at $56.25.

Overseas, London's FTSE 100 closed up 0.1% to 4576 while Germany's Xetra DAX gained 0.2% to 4134. In Asia, Japan's Nikkei lost 1% to 12,045, while Hong Kong's Hang Seng closed up 0.2% to 12,155.

More than 70 companies are scheduled to continue the barrage of first-quarter earnings results before Wednesday's opening bell, including Boeing ( BA), expected to report earnings of 44 cents a share, up from last year's 42 cents a share; Time Warner ( TWX), expected to match last year's results of 9 cents a share; Comcast, expected to swing to a profit of 7 cents a share from last year's loss of 13 cents a share; and Halliburton ( HAL), expected to report earnings of 30 cents a share, up from last year's 12 cents a share.

Investors also will digest earnings from McDonald's ( MCD), which reported first-quarter earnings after the bell Tuesday that met analysts' estimates on revenue slightly above the consensus.

No major economic releases are due out Wednesday.

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