President Bush gave Iraqi leader Saddam Hussein until tomorrow night to go into exile or face a massive U.S. military strike. Bush also warned the nation about retaliatory terror attacks and announced that the terror alert was being raised to orange, the second-highest level.

Today, Iraq's leadership rejected the ultimatum.

Stocks have been rallying since last week on investors' hopes that a short-lived war will spur a rebound in business and consumer spending. Analysts have said, however, that stocks will have a difficult time holding onto rallies as long as there is uncertainty about war.

After falling as much as 45.80, the Dow Jones industrial average closed up 52.31, or 0.6 percent, at 8,194.23, according to preliminary calculations. In the previous four sessions, the Dow rose by a stunning 617.86 points.

The broader market also ended higher. The Nasdaq composite index rose 8.26, or 0.6 percent, to 1,400.53. The Standard & Poor's 500 index advanced 3.66, or 0.4 percent, to 866.45.

Trading was chopping throughout the session with stocks fluctuating ahead of the Federal Reserve's decision on interest rates. Stocks managed to post a decent advance just before the Fed announced it was leaving rates unchanged and kept its bias toward rates at "neutral." But stocks pulled back after that decision as investors were disappointed that the central bank hadn't cut rates by an additional 0.25 percentage point or at least moved its bias toward rates to one of easing them further in the future.

The Fed has lowered rates 12 times since early 2001 in an effort to reinvigorate the economy.

Meanwhile, today's data on the economy was downbeat as the Commerce Department reported that new housing construction plunged by 11 percent in February, the sharpest decline in nearly a decade.

But ultimately investors chose to focus on hopes that a war with Iraq would be brief and the United States would be successful. Such a scenario would be beneficial to the economy, because it would help businesses and consumers feel confident about increasing their spending.

Among the market's winners, LaBranche rose $1.66 to $20.01 after Raymond James upgraded the trading specialist firm to "outperform."

Applied Materials advanced 41 cents to $13.54 after the chip equipment maker announced a restructuring plan that including cutting its work force by 14 percent, or 2,000 employees.

But home builders subsequently traded lower. Centex fell 26 cents to $52.34.

Among other losers, ConocoPhilips slipped 8 cents to $50.92 after First Albany downgraded the oil and gas company to "sell."

Advancing issues had a narrow lead of 15 to 14 over decliners on the New York Stock Exchange. Trading volume was light.

The Russell 2000 index, which tracks smaller company stocks, rose 2.62, or 0.7 percent, to 368.02.