Stocks barely budged, but that didn't take away from their recovery from the grueling three-year bear market. In 2003, the Dow Jones industrials closed up 25.3 percent, the Nasdaq composite surged 50 percent, and the Standard & Poor's 500 gained 26.4 percent.

"You can't help but be impressed how much stocks moved this year," said John Caldwell, chief equity strategist for McDonald Financial Group. "It was in response to a stronger-than-expected economy and earnings growth. We're seeing the fruits of companies' labor as they scaled back operations."

"The question is how much of the stock market gains already account for that" as investors look to 2004, he said.

The Dow closed up 28.88, or 0.3 percent, at 10,453.92, its highest level since March 21, 2002. The broader market finished mixed. The Nasdaq declined 6.51, or 0.3 percent, to 2,003.37. The S&P 500 rose 2.28, or 0.2 percent, to 1,111.92.

In the end, the three main gauges had their best annual performance in years, with the Dow notching its strongest gain since 1996 and the S&P seeing its best since 1998. The Nasdaq had its third best performance ever, behind a 57 percent rise in 1991 and an 86 percent gain in 1999.

For the month, the three main indexes posted a gain, with the Dow up 6.9 percent, the Nasdaq higher 2.2 percent and the S&P up 5.1 percent.

Stocks gained in recent weeks on investor optimism for the strong earnings growth in 2004. But with the main gauges trading at their highest levels in almost two years, analysts say valuations might be getting a bit high.

"It should be encouraging that folks aren't heading for the doors in terms of a lot of selling pressure," Caldwell said.

It's a contrast from one year ago. Investors began 2003 with trepidation, stung by three years of bitter declines after the bursting of the tech bubble in early 2000 and uncertain about the economy as the United States headed toward a war with Iraq.

The winding down of Mideast combat in late March, however, boosted investor sentiment. Fiscal tax cuts and yet another interest-rate cut later that year also contributed to a strong rally that lifted the Dow above 10,000 for the first time since May 2002 and the Nasdaq above 2,000, last seen in January 2002.

In 2004, many analysts are expecting more modest market growth of about 10 percent as the risk of rising interest rates grows and the effect of fiscal tax cuts loses effect over time.

"The market is in very good fundamental condition with a low-inflation, low interest-rate environment," said Joseph V. Battipaglia, chief investment officer at Ryan Beck & Co. "The next part of the story has to be job creation. If you create jobs in this environment, you have economic growth that can sustain itself beyond '04 and '05."

Yesterday, Murphy Oil Corp. dropped $2.71 to $65.31 after the oil company lowered its 2004 earnings outlook below Wall Street's estimates. Gainers included Dow component Merck & Co., which rose 70 cents to $46.20, after the drug company filed a new application with the Food and Drug Administration for its Arcoxia pain reliever.

Declining issues narrowly outnumbered advancers on the New York Stock Exchange. Consolidated volume was very light at 1.32 million shares, the same amount traded Tuesday.

The Russell 2000 index fell 8.56, or 1.5 percent, to 556.91.