The Nasdaq climbed as much as 5 percent, or 138 points, during the day, but settled back to close up 64.23, or 2 percent, at 2,682.78.
The Standard & Poor's 500 index inched up 2.97 to 1,329.62 while the Dow Jones industrial average fell 68.32 to 10,584.34 led by Home Depot, which lost $2.50 to $46.38.
About 2.81 billion shares exchanged hands on the Nasdaq, the fifth-largest volume day in its history, as three stocks rose for every two that fell. Trading volume on the New York Stock Exchange was a heavy 1.32 billion shares.
"Earnings look good so far," said Michael Palazzi, head of Nasdaq trading at CIBC World Markets, regarding the start of fourth-quarter earnings season.
Palazzi said he thinks investors are still debating whether to view this period as either the last part in the declining phase of a corporate earnings cycle or as the beginning of a recovery in earnings.
Investors were happy to take the more optimistic view for Wednesday anyway and rewarded companies showing good earnings.
Applied Micro Circuits led the charge higher, rising $10, or 14 percent, to $80.38, after the company posted earnings that exceeded Wall Street expectations.
The chipmaker reported a pro forma fiscal third-quarter net income of $48.1 million, or 16 cents a share, which excludes charges related to costs for acquisitions and stock-option taxes.
Wall Street expected Applied Micro to earn 14 cents a share, excluding charges, which was the average estimate of 17 analysts surveyed by First Call. In the quarter ending Dec. 31, revenue increased to $143.3 million from $45.8 million a year ago and from $97 million in the previous quarter.
Including charges, Applied Micro posted a third-quarter net loss of $269.5 million, or 95 cents a share, compared with a net income of $12.1 million, or 5 cents a share, for the same period last fiscal year.
Juniper Networks also beat expectations for its fourth quarter. The maker of high-end network routers posted a pro forma net income of $84.6 million, or 24 cents per share, on revenue of $295.4 million. That compares with earnings of $4.8 million, or 1 cent per share, on revenue of $45.4 million for the same period in 1999.
Analysts expected Juniper to earn 18 cents per share, according to a survey by First Call. The stock climbed $8.19, or 6 percent, to $136.19.
Kathy Taylor, assistant manager of Nasdaq trading at St. Louis-based investment bank A.G. Edwards, said although individual investors generally do not set market trends like institutional funds, small investors can play a significant role in preserving the momentum of a market upturn.
"Most of our business is from individual investors, and we're seeing more participation from those investors, which is a good sign," Taylor said.
Nearly all of the 18 sectors tracked by CNET Investor recorded gains. Semiconductor equipment makers were the day's largest gainers, climbing 7 percent. Computer services companies posted the largest losses, falling about 2 percent.
The CNET tech index rose 60.35 to 2,246.34. Advancers gave decliners a thrashing, with 80 of the 96 stocks in the index rising and 16 falling.
Wall Street also digested some economic news.
The Labor Department said its Consumer Price Index, a measure of the price change of a fixed list of consumer goods, rose 0.2 percent in December, the same rise as November, which matched Wall Street forecasts.
Excluding the more volatile food and energy sectors, the "core" CPI rose 0.1 percent in December after advancing 0.2 percent in October and 0.3 percent in November. Analysts expected a rise of 0.2 percent.
Soaring energy costs lifted the CPI 3.4 percent in 2000 compared with last year's rise of 2.7 percent. The "core" CPI rose 2.6 percent for the year compared with 1.9 percent last year.
While energy drove up inflation overall for the year, Wall Street expects the Federal Reserve to continue to cut interest rates when it meets at the end of January.
"The inflation trend poses little obstacle to continued rather aggressive Fed easing at the end of the month," Peter Kretzmer, an economist at Banc of America Securities, wrote in a report.
Meanwhile, other tech companies had less rosy news to report.
VA Linux Systems announced that it expects its fiscal second-quarter loss to be larger than Wall Street expectations. The maker of Linux software said it will report a loss between 24 cents and 28 cents a share, excluding noncash charges. The company also expects to post revenue in a range between $43 million and $50 million.
Wall Street expected the company to lose 14 cents a share, the consensus estimate of five analysts surveyed by First Call. Shares of VA Linux fell $2, or nearly 22 percent, to $7.13.
Macromedia beat expectations for its fiscal third quarter but also cut its earnings outlook and predicted fourth-quarter profit and revenue would be unchanged from the third quarter. The news sent the stock down $13.69, or 31 percent, to $30.31, making it the largest percentage loser on the Nasdaq.
In its earnings report Tuesday, the software maker said it earned $16.2 million, or 29 cents per share, almost a 98 percent increase from its profit of $8.2 million, or 15 cents per share, in the year-earlier period. Analysts polled by First Call expected the company to earn 25 cents per share.
Intel squeaked past lowered fourth-quarter earnings expectations, posting a net income of $2.6 billion, or 38 cents a share. Analysts polled by First Call had expected the company to earn 37 cents a share. The chipmaker closed down 88 cents at $30.50.
The company also revealed a bleak outlook for the first quarter of 2001 and predicted a 15 percent decrease in revenue compared with the fourth quarter of 2000.
The news was good for other companies in the chip industry. Intel plans to increase research and development spending to $4.3 billion in 2001 from $3.9 billion in 2000, according to its earnings statement. Capital spending for 2001 will also increase to about $7.5 billion in 2001 from $6.7 billion in 2000.
Chip-equipment makers rose after the news. Applied Materials rose $3.75, or 8 percent, to $48.19, while KLA-Tencor gained $3.19, or about 9 percent, to $40.38.