NEW YORK, FEB. 7 -- Is this a new bull market or simply a sucker's rally?

Listening to Wall Street these last three weeks, you'd think we'd won the war, come out of the recession and rescued the banks.

In a multibillion-dollar bet that the country will return to both peace and prosperity by summer, investors have stampeded to purchase stocks since mid-January and sent prices soaring 12 percent in a strong, broad-based advance.

Capturing the mood, the Wall Street Journal led its editions today with an article about institutional money managers and individual investors clambering to get aboard a new bull market rally that could last several years.

"The bull is back and running at full stride," proclaimed USA Today, which held out the front-page prospect of a Dow Jones industrial average at 3300.

But by day's end, Wall Street's small cadre of contrarians had taken some small comfort in the bull's sudden stop. The Dow Jones average ended the day down 20 points in heavy trading. Some investors took profits, while others wondered whether the recent run-up wasn't just a temporary respite from a long-term down market, known in the trade as a "sucker's rally" or "bear trap."

Even with today's retreat, however, the closing Dow Jones index of 2810.64 was just 28 points shy of registering a 20 percent gain from its low point in October -- the traditional criteria to qualify as a "bull" phase.

"There has been a change in investor psychology. Demand is even stronger than I was expecting, and that says to me that the trend of prices can go higher," said Kenneth M. Spence, chief of technical market analysis at Salomon Brothers Inc.

Spence was skeptical about the market's long-term prospects at the start of the year, but, like many of his peers, he has been raising his forecasts because of the impressive combination of high buying volume, falling interest rates and a dramatic revival in small companies' shares.

"We could be in a bull market," agreed Charles I. Clough Jr., chief investment strategist at Merrill Lynch & Co. While he said it is too early to be sure that the "bear market," or downward trend, is over, Clough said it was "safe to buy stocks, without answering that theological question," as long as interest rates continue to decline.

In addition, those traders known as "short sellers," who bet their money that the price of a stock will go down in the coming months, were so unnerved by rapidly rising share prices that they were rushing to buy themselves -- in effect hedging their earlier bet. Bank stocks, hammered by the "shorts" in November and December, have been the object of particularly heavy buying.

"What we have here are the seeds of a buying panic. The big institutions are saying to themselves, 'We better get some money invested here -- we can't afford to be left out,' " said James L. Melcher, president of Balestra Capital Ltd., an investment management firm here.

The institutions have plenty of cash to invest, because most had pulled much of their money out of the stock market beginning on Aug. 2 when Iraq invaded Kuwait. The resulting war jitters and rising oil prices, aggravated by the business slump and concern over the shaky U.S. banking system, created a pall of uncertainty that depressed the market.

But all those fears seemed to have vanished in recent weeks, beginning with the dramatic early military successes enjoyed by the United States and its allies at the start of the Persian Gulf War.

Equally important, the Federal Reserve Board made clear both in public statements and in cuts in key interest rates that it has adopted a much more aggressive policy of easing monetary policy and thus seeking to pump more money into the economy. That was music to the stock market's ears, because lower interest rates both improve the attractiveness of stocks -- compared with bank deposits or other interest-paying investments -- and raise the likelihood that the recession will be mild and short-lived.

"The market certainly is acting as if this war is not a problem and its impact is behind us. The market also is looking beyond the recession and {poor} corporate profits and suggesting that a recovery is going to be sooner rather than later," said Mary C. Farrell, a first vice president and investment strategist at PaineWebber Inc. here.

Still, there seems to be plenty of grounds for skepticism.

On the war front, a U.S.-led ground offensive could bog down or Israel could be lured into the fighting and cause a split in the anti-Iraq coalition -- either of which could easily send the market reeling again.

The outlook for the economy also could turn sour. Some Wall Street economists fear that the decline in interest rates may fail to jump start the economy, or perhaps could revive inflationary pressures. A particularly widespread concern is that the economic recovery, when it comes, will be so weak that it will do little to improve corporate profits, which are the most reliable yardstick by which the market sets stock prices.

One skeptic whose bearish conviction remains unshaken is David O. Rajala, director of equity management at One Federal Asset Management, a $3 billion investment counseling firm in Boston. He predicted the economic recovery would be delayed by weak capital spending, reluctant consumers and slack export markets.

"The New Year's romance and euphoria are probably over," said investment manager Frederick E. Russell today told Dow Jones News Service. "The market must now discount the possibility that the war will turn bloody and ugly."

Even Steven G. Einhorn, co-head of investment policy at Goldman, Sachs & Co., who recently proclaimed the advent of a new bull market, conceded that both the recovery in general and the rebound in profits in particular were likely to be "well below average." As reasons, he cited banks' reluctance to lend, excessive debt levels and the surplus of real estate.

One reason the market has rallied in the face of war and recession is that it has always been more oriented toward the future than the present. Many investors, in fact, assume that the best time to buy is when things are hitting bottom and prices are at bargain basement levels.

"Most market timers assume that when the news is worst, it's time to buy," Rajala said.

Moreover, the troubled conditions in other potential investment areas, especially real estate, have made stocks seem attractive by contrast.

In today's trading on the New York exchange, declining issues barely edged advances on the NYSE on heavy volume of 292 million shares.

General Dynamics shed 1 to 27 after posting a $530 million fourth-quarter loss late Wednesday. Eli Lilly lost 1 3/4 to 73 7/8 on fear of problems with its widely used antidepressant drug, Prozac. Lockheed rose 1 3/4 to 41 7/8, after investor Harold Simmons said he would forgo a proxy fight in exchange for three seats on the company board.

Among broad stock indexes, the Standard & Poor's 500 fell 1.55 to 356.52, the NYSE Composite down 0.64 at 194.74, the Value Line down 0.62 at 276.17, the Amex Market Value up 1.93 at 334.66, and the Nasdaq Composite down 4.23 at 435.01.