Tech stocks climbed after Wall Street powerhouse Merrill Lynch's upgraded its recommendations on 12 computer chipmakers, while blue chips slipped and finished below their session peaks Wednesday.

The technology-laced Nasdaq Composite Index gained 41.25 points to 2,068.38. The blue-chip Dow Jones industrial average fell 12.80 points to 10,510.01 after gaining over 77 points during the trading day, and the broader Standard & Poor's 500 Index crept up 4.70 points to 1,215.93.

``The market is doing better, but it's still a little tentative,'' said Hugh Johnson, chief investment officer at First Albany Corp. ``The confidence in buying stocks again without the worry that you are going to get blindsided by a bad earnings report or warning is coming back slowly. But confidence in the market doesn't turn on a dime.''

Investors again shrugged off downbeat economic news, as one report showed that the U.S. manufacturing sector was still shrinking and appeared to lack drivers to stimulate recovery.

Merrill, noting the worst may be over for the chip companies, raised its opinion on the global semiconductor sector and upgraded its recommendations on 12 stocks. Industry fundamentals suggest global demand had hit a trough and supply was stabilizing after strong growth, the brokerage said. 

Among firms it upgraded, Analog Devices Inc., Linear Technology Corp., Maxim Integrated Products Inc. and St. Microelectronics were raised to ``buy'' from ``neutral'' in the intermediate term. RF Micro Devices Inc., Texas Instruments and two others were upgraded to ``buy'' from ``accumulate''. All these stocks rose, with Texas Instruments up $2.13 at $36.63 on the New York Stock

Merrill warned some chip giants still deserved a cautious look. Intel Corp. and Advanced Micro Devices, the largest makers of microprocessors for personal computers, face price cuts this year that will be ``far worse than either company expects,'' it said. Yet Intel rose 94 cents to $30.75, while Advanced Micro stock climbed 64 cents to $18.90.

Investors also got some good news on the earnings front from companies such as Priceline.com Inc.. The name-your-own-price Internet commerce company after the close on Tuesday posted quarterly earnings that easily beat Street estimates amid cost-cutting efforts and a focus on its core travel business. Priceline.com, which also raised its third-quarter revenue and earnings outlook, gained 65 cents to $9.52. It was among the most active issues on the Nasdaq.

Dow component General Electric Co. shed 70 cents to $42.80. The Bush administration said it will order the industrial conglomerate to dredge the Hudson River to remove toxic waste it dumped into the river over several decades, a huge project that will cost several hundred million dollars. 

Quaker Oats Co. rallied $12.30 to $100.30. The U.S. Federal Trade Commission allowed PepsiCo Inc. to proceed with its $13.9 billion purchase of Quaker despite concerns the deal would leave the company in a position to dominate the sports drinks market. PepsiCo lost $2.94 to $43.69. 

Lucent Technologies, the most active stock on the New York Stock, slipped 57 cents to $6.13 for a loss of more than 8 percent. The telecommunications equipment maker said it expects to raise $1 billion through a private offering of redeemable convertible preferred stock.

Vishay Intertechnology Inc. said it has agreed to acquire smaller rival General Semiconductor Inc. for $538.9 million in stock, plus $229.4 million in assumed debt, gaining an even stronger foothold in the U.S. electrical component market. Cooper shares jumped $10.24 to $51.75, or nearly 25 percent, while Danaher lost $2.44 to $54.15.

KLA-Tencor Corp., which makes equipment to test semiconductors, jumped $2.71 to $57.10 after it said profits declined but beat estimates.

Outside of technology, the market was mixed, which analysts attributed to the fact that the overall economy remains weak. Home Depot fell 59 cents to $49.78 and General Motors declined 93 cents to $62.67, while American Express advanced $1.16 to $41.49 and Philip Morris rose 23 cents to $45.73.

Cigna Corp., the third-largest U.S. health insurer, skidded $13.66 to $86.65. The company said quarterly earnings fell 6 percent due to rising medical costs that could also hurt results for the rest of the year.

In other news, industrial conglomerate Danaher Corp. said on Wednesday it has offered to acquire Cooper Industries Inc.for up to $5.5 billion in a move to bulk up its product offerings with Cooper's broad line of electrical products, tools and hardware. Cooper jumped $11.39 to $52.90, while Danaher lost 29 cents to $56.30.

Advancing issues outnumbered decliners nearly 3 to 2 on the New York Stock Exchange . Volume came to 1.29 billion shares, ahead of the 1.14 billion shares Tuesday.

The Russell 2000 index, the barometer of smaller company stocks, rose 4.46 to 489.24. 

Overseas markets were mostly higher Wednesday. Japan's Nikkei stock average finished the day up 0.8 percent. In Europe, Britain's FT-SE 100 gained 0.3 percent, and France's CAC-40 rose 0.5 percent. In afternoon trading, while Germany's DAX index slipped 0.4 percent.

-- Reuters and the Associated Press contributed to this report.