Nasdaq stocks pushed to their highest levels in 20 months.

The market hung lower for much of the day, an expected pause after the strong gains of recent weeks, but turned moderately higher by mid-afternoon.

The Dow Jones industrial average rose 48.60, or 0.5 percent, to 9,812.98, the highest close since May 31, 2002, after rising 90 points in earnings-driven trading yesterday.

Broader stock indicators were also higher, with the Standard & Poor’s 500 index rising 4.13, or 0.4 percent, to 1,049.48. Like the Dow, the S&P 500 finished at its highest level since May 2002.

The Nasdaq composite index rose 9.66, or 0.5 percent, to 1,943.19, its best finish since Jan. 28, 2002. The Nasdaq last closed above 2,000 earlier that same month.

Ed Peters, chief investment officer at PanAgora Asset Management Inc. in Boston, said some market players automatically cut positions this morning, cashing in profits after the market reached its highs yesterday.

Some analysts believe market prices already reflect expectations for strong third-quarter earnings, and that might have contributed to the initial lukewarm response to today’s reports.

However, earnings were strong enough that investors ultimately resumed buying as the session wore on.

"Merrill was the number that everybody latched onto today," Peters said.

Merrill Lynch & Co. Inc. reported a 50 percent increase in third-quarter earnings. Although the results topped most analyst forecasts, Merrill’s stock fell 82 cents to $58.07 after rising $8 so far this month.

Investors appear to have fallen into two camps lately. One believes that prices, already reflecting third-quarter earnings, are unlikely to go much higher.

But another faction anticipates that if companies do fulfill expectations and release solid results, a rally will ensue; those investors are buying now before prices surge higher.

Among the Dow 30, Johnson & Johnson rose $1.14 to $50.93 after the drug and medical product maker posted a 20 percent improvement in third-quarter profits, beating most analyst estimates.

Bank of America Corp. rose 72 cents to $82.46 after posting strong results.

Elsewhere, Delta Air Lines Inc. fell 98 cents to $13.74 after posting a smaller-than-expected loss of $168 million.

Advancing issues outnumbered decliners by a 6-to-5 ratio on the New York Stock Exchange, where volume came to 1.25 million shares, up from 1.03 million in yesterday’s light holiday session.

The Russell 2000 index of small-company shares rose 4.27, or 0.8 percent, to 531.84.