Shares of major contract manufacturers were being very heavily traded Tuesday, following a bullish note by a Bear Stearns analyst, but price gains were modest.

With the session only about half over, more than 5.4 million shares of

Solectron

( SLR) had traded hands, compared with an average full-day volume of 1.6 million. The company was up just 6 cents, or 1%, to $5.35.

Flextronics

(FLEX) - Get Report

, the sector leader, was up about 2% to $14.85 a share, on trading of 10 million shares, compared with average volume of about 3.5 million shares.

The biggest gainer was

Celestica

(CLS) - Get Report

, up $1.03, or 7.5%, to $14.84 a share.

In a note following a tour by Bear Stearns clients of Flextronics,

Sanmina-SCI

(SANM) - Get Report

and Solectron facilities in Northern California, analyst Thomas Hopkins said, "All three managements indicated that strong demand, early signs of seasonal sell-through and low customer inventory levels appear to be driving a better-than-expected seasonal uptick in December and a potential less-than-expected seasonal decline in the March quarter."

Although Flextronics management did not raise guidance for the December quarter, Hopkins said CEO Michael Marks made it clear that "management is seeing somewhat stronger seasonality than last year, due to a pickup in core demand and not just low OEM inventory levels."

Flextronics, he said, is adding 400,000 square feet of manufacturing capacity in China, and its circuit board unit is currently sold out of handset capacity through the March quarter.

On Nov. 25, a California judge will hear arguments on Flextronics' attempt to lower the nearly $1 billion verdict brought against it in a suit by

Beckman Coulter

( BEC). If the judge orders an appeal, rather than lowering the award or ordering a new trial, Flextronics could be forced to post a bond for nearly $1.5 billion. In a note to clients Tuesday, Goldman Sachs analyst Stephen Savas said the decision could move the stock as much as 10% on the negative side or 5% on the positive side, "but there's no way to handicap this." Goldman has done banking for Flextronics.

Interestingly, Solectron CEO Michael Cannon said that for the first time in a while, the company is concerned that it might not be able to meet demand in the quarter.

The comments by both companies regarding capacity could signal that the sector, which has shed significant amounts of capacity in the last few years, is finally getting closer to a size that is in line with demand.

Bear Stearns has an investment banking relationship with Flextronics.