Updated from Oct. 3

Investors started the fourth quarter with the same lack of conviction that has characterized the market all year.

After posting early gains Monday, stocks were pressured following a report confirming the Federal Reserve's prediction that even after Hurricane Katrina, inflation risks appear to be outweighing the chance that economic growth will be impaired.

The markets reflected this no so rosy but not completely bearish outlook. Government bonds fell, but stocks ended mixed as the Nasdaq Composite advanced slightly.

The Institute for Supply Management said its manufacturing index jumped to 59.4 in September from 53.6 in August. That was well above expectations for the index to dip to 52.0. One key inflation guage in the ISM report was particularly notable: The survey's prices-paid index skyrocketed to 78 from 62.5.

" The ISM report gives a green light for the Fed to continue to tighten on Nov. 1 and signals that any Fed pause will tend to happen later rather than sooner," says Michael Gregory, an interest rate strategist at BMO Nesbitt Burns.

Still, many investors are eager to put money at work, and there's increasing chatter about a fourth-quarter rally in stocks. Helping the bullish case, the price of crude oil dropped 74 cents to $65.50 a barrel on Nymex.

Merger news helped fuel buying interest early in the day, especially in the tech arena. Symantec ( SYMC) said it will acquire information technology company BindView ( bvew) for $209 million.

Elsewhere, Google ( GOOG) was higher on word that it plans a collaboration with Sun Microsystems ( SUNW).

The Nasdaq gained 3.74 points, or 0.17%, to 2155.43.

Outside the tech space, stocks dependent on consumer spending also saw increased buying interest. Altria ( MO), for one, helped prevent wider losses for the Dow Jones Industrial Average. The index finished down 33.22 points, or 0.31%, at 10,535.48. While that was well off a pre-ISM report high of 10,608, it was above the intraday low 10,523.63.

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