11:30AM Market averages rebounded, as weaker economic data raised rate-cuts optimism.

U.S. stocks rebounded Tuesday, as a slowdown in manufacturing growth and construction spending boosted investor optimism that the Fed Reserve will cut its key federal funds rate in two weeks. The ISM reported that the manufacturing sector expanded at a slower pace. The ISM index fell to 52.9% in August from 53.8% in July. In another report, the Commerce Department said construction spending fell in July by 0.4%, the largest amount in six months.

Tech shares posted considerable strength, led by Apple and Yahoo. Apple (APPL: chart) rose 3.1% amid speulations that sales of the company's Macintosh computers are exceeding estimates. The company is expected to release an improved version of its iPod. Shares of Yahoo (YHOO: chart) shot up 5.5% on deal speculations. Bear Stearns named the company as a top pick for the next 12 to 16 months.

Among other standouts in the tech sector, Dow component Intel (INTC: chart) traded up 2.3%, as Banc of America Securities increased its price target to $31 from $29, while chipmaker Advanced Micro Devices (AMD: chart) gained 2% on Credit Suisse upgrade. Dow member Verizon Communications (VZ: chart) rose 1.8% to lead the index higher.

Pharmaceutical stocks were among the most actively traded. Dow component Merck & Co. (MRK: chart) lost 0.7%. It released positive results Sunday on its experimental cholesterol drug. Eli Lilly & Co. (LLY: chart) gained 1.1% after researchers said an experimental drug for schizophrenia appeared safe without some of the side effects of other drugs.

Boston Scientific (BSX: chart) jumped 2.8% and Johnson & Johnson (JNJ: chart) edged up on news that drug-coated heart stents produced by the companies may not increase the risk of blood clots as much as previously thought.

In late morning trading, the Dow Jones industrial average rose 42.35, or 0.32%, to 13,400.09. The Standard & Poor's 500 index added 10.13, or 0.69%, to 1,484.12, and the technology-dominated Nasdaq composite index jumped 27.72, or 1.07% to 2,624.08.

The ISM manufacturing index fell to 52.9% in August.

Tuesday morning, the Institute for Supply Management released its report on economic activity in the manufacturing sector in the month of August, showing that the pace of growth in the sector slowed compared to the previous month. The ISM said that its index of activity in the sector fell to 52.9 in August from 53.8 in July, although a reading above 50 still indicates growth in the sector. Economists had been excepting the index to drop to 53.0.

The slowdown in the pace of growth in the sector was due in part to slower new orders growth, with the news orders index falling to 55.3 in August from 57.5 in the previous month. On the other hand, production saw faster growth in the month of August, as the production index rose to 56.1 from 55.6 in July. Employment growth also accelerated, with the employment rising to 51.3 from 50.2. The report also showed a slowdown in the pace of price growth, as the prices index dipped to 63.0 in August from 65.0 in July. The index still indicates a relatively fast rate of price growth.

Construction spending fell 0.4% in July.

The Department of Commerce released its report on construction spending in the month of July on Tuesday, showing that spending fell much more than expected compared to an upwardly revised reading for the previous month. The report showed that spending fell 0.4 percent in July following a revised 0.1 percent increase in June. Economists had expected spending to fall 0.1 percent compared to the 0.3 percent decrease originally reported for the previous month. With the decrease, construction spending fell to a seasonally adjusted annual rate of $1,169.1 billion, 2.0 percent below the July 2006 estimate of $1,192.9 billion.

The bigger than expected drop in construction spending, which was the steepest drop in six months, was largely due to a 0.7 percent drop in spending on private construction. The Commerce Department said that spending on residential construction fell 1.4 percent in July, more than offsetting a 0.4 percent increase in spending on non-residential construction. The drop in spending on private construction was partly offset by an increase in spending on public construction, which rose 0.7 percent. While spending on education construction rose 1.9 percent, spending on highway construction fell 0.8 percent.


09:45AM Wall Street opened mixed ahead of economic data.

Wall Street opened mixed, waiting indications from economic data whether the Fed Reserve will reduce interest rates at the FOMC meeting in two weeks. Some investors believe that it will cut its key rate to ensure economic growth, as the tight access to credit has made it harder for consumers and businesses to borrow.

The tech-heavy Nasdaq was supported by merger-and acquisition news, as discount wireless phone service provider MetroPCS Communications offered to buy rival Leap Wireless International for about $5.12 billion in stock. Leap Wireless (LEAP: chart) surged 14%.

Yahoo (YHOO: chart) also provided a boost, benefiting from a positive analyst comment. Its stock jumped 4.6% after Bear Stearns named the company''s stock as a top pick. Apple (APPL: chart) shares rose about 3%. Advanced Micro Devices (AMD: chart) was another notable gainer in the tech sector after Credit Suisse upgraded its stock to neutral from underperform, sending it up 1.8%. Intel (INTC: chart) rose 1.2% after Bank of America Securities increased its price target to $31 from $29.

At the same time, the blue-chip average along with retail were weighed down by Home Depot (HD: chart) which dropped 3.4% after it said it would buy back about 289.6 million shares at $37 each. General Motors (GM: chart) advanced 0.9% ahead of monthly sales release by automakers. Analysts expect that August sales in the U.S. will hit a ten-year low.

Merrill Lynch slashed its earnings estimates on 12 service stocks, as it predicts a 65% U.S. recession. As a result, FTI Consulting (FCN: chart) dropped 2.5%, Heidrick & Struggles (HSII: chart) slipped 5.9%, and Manpower (MAN: chart) declined 3%. Merrill Lynch also upgraded Iron Mountain (IRM: chart) to buy from neutral, sending it up 1.4%.