Stocks lifted Tuesday, after dips in manufacturing growth and construction spending raised hopes for an interest rate cut that would bring more money back into Wall Street.

Though economic data came in a bit slower than anticipated, the market built on the big gains it made Friday, when Federal Reserve Chairman Ben Bernanke said the central bank stood ready to "act as needed" to prevent credit troubles from hurting the national economy. Many investors interpreted that statement as indicating the Fed's willingness to lower rates if necessary.

In late morning trading, the Dow Jones industrial average rose 42.35, or 0.32 percent, to 13,400.09.

Broader stock indicators also advanced. The Standard & Poor's 500 index added 10.13, or 0.69 percent, to 1,484.12, and the technology-dominated Nasdaq composite index jumped 27.72, or 1.07 percent, to 2,624.08.

The Institute for Supply Management reported that the manufacturing sector expanded in August at a slower pace than in July, while the Commerce Department said construction activity fell in July by 0.4 percent, the largest amount in six months.

Sluggish growth supports the argument for the Fed to cut the benchmark federal funds rate when it meets on Sept. 18, after more than a year of holding rates steady.

"We haven't had anything happen to change that outlook," said Arthur Hogan, chief market analyst at Jefferies & Co. "Everything still points to a Fed that could lower rates."

In recent weeks, more difficult access to credit has made it harder for consumers and businesses to borrow, stirring concerns that tighter access to money will hurt the economy. On Tuesday, in keeping with its promise to aid the markets as needed, the Fed added a relatively moderate $5 billion to the banking system through a repurchase agreement.

In late morning trading, the Dow Jones industrial average rose 42.35, or 0.32 percent, to 13,400.09.

Broader stock indicators also advanced. The Standard & Poor's 500 index added 10.13, or 0.69 percent, to 1,484.12, and the technology-dominated Nasdaq composite index jumped 27.72, or 1.07 percent, to 2,624.08.

"Technology stocks are cheapest they've looked in 10 years, on an earnings multiple basis," Hogan said, noting that the tech sector got particularly pummeled during this summer's stock market plunge.

Also helping boost the Nasdaq, discount wireless phone service provider MetroPCS Communications Inc. (PCS) offered to acquire rival Leap Wireless International Inc. (LEAP) for about $5.12 billion in stock. Leap Wireless soared $10.25, or 14 percent, to $82.75 on the news. MetroPCS rose $1.31, or 4.8 percent, to $28.60.

The Dow's gains, meanwhile, were limited by The Home Depot Inc. (HD), which saw its stock fall $1.77, or 4.6 percent, to $36.54 after saying it expects to buy back $10.7 billion in stock as a result of a tender offer -- a little less than halfway towards its goal of repurchasing $22.5 billion in stock.

Bond prices fell as stocks gained. The yield on the 10-year Treasury note, which moves inversely to its price, rose to 4.57 percent from 4.53 percent late Friday. The dollar was mixed against other major currencies, while gold prices rose.

Light, sweet crude rose 74 cents to $74.78 a barrel on the New York Mercantile Exchange.

Advancing issues outnumbered decliners by about 7 to 4 on the New York Stock Exchange, where volume came to 414.3 million shares.

The Russell 2000 index of smaller companies rose 5.18, or 0.65 percent, to 798.04.

Overseas, Japan's Nikkei stock average fell 0.63 percent. Britain's FTSE 100 rose 0.06 percent, Germany's DAX index rose 0.19 percent, and France's CAC-40 slipped 0.24 percent.

Though the stock market appeared to be stable Tuesday, Wall Street has entered one of its historically most difficult months as investors return from their vacations and reassess their holdings. Though last September was good for the stock market, the S&P 500 typically loses 0.7 percent during the month and 0.6 percent in Septembers that precede an election year, according to the Stock Trader's Almanac.

Later in the week, Wall Street will be reading reports on pending sales of existing homes, the U.S. service sector, and -- most importantly to investors -- the Labor Department's employment report.

"We've got a pretty full week of economic data," Hogan said. "Everything's important to us when we're on Fed watch, right?