* July construction spending his 5 1/2 year high
* Dollar General ups Family Dollar bid
* Markit factory activity expands in August
* ISM manufacturing accelerates in August
* Indexes: Dow off 0.14 pct, S&P off 0.11 pct, Nasdaq up 0.18 pct (Updates to midday)
By Chuck Mikolajczak
NEW YORK, Sept 2 U.S. stocks held near the unchanged mark on Tuesday as investors digested the latest batch of solid economic reports on the heels of the strongest monthly performance for the S&P since February.
In the latest signs of strength in the economy, financial data firm Markit said its final U.S. Manufacturing Purchasing Managers Index rose to 57.9 in August while a separate report from the Institute for Supply Management on the manufacturing sector rose to 59.0. A reading above 50 indicates expansion.
In addition, construction spending rebounded strongly, as it increased by 1.8 percent to an annual rate of $981.31 billion, the highest level since December 2008.
"The market is probably pricing in stronger numbers on the economic side, but it's still very much positive," said James Liu, global market strategist at JPMorgan Funds in Chicago.
"We are expecting to see stronger economic numbers, the market is certainly expecting that, and as long we get them, we can do quite well above 2,000 on the S&P 500."
The Dow Jones industrial average fell 23.82 points or 0.14 percent, to 17,074.63, the S&P 500 lost 2.21 points or 0.11 percent, to 2,001.16 and the Nasdaq Composite added 8.27 points or 0.18 percent, to 4,588.54.
In a note to clients on Tuesday, Morgan Stanley strategist Adam Parker said the U.S. economy could be in the midst of its longest expansion ever and the S&P 500 could reach the 3,000 mark should it have five or more years of growth left.
The benchmark S&P index gained 3.8 percent in August, its best month since a 4.3 percent climb in February. However, the monthly average volume of 5.24 billion shares traded was the lowest of the year, according to data from BATS Global Markets.
Merger activity continues to flourish. Dollar General Corp raised its bid for Family Dollar Stores Inc by 2 percent to $80 per share, or $9.1 billion, and warned it may turn hostile and appeal directly to shareholders if the new offer is rejected. Family Dollar shares edged up 0.5 percent to $80.21 while Dollar General advanced 0.5 percent to $64.33.
Compuware jumped 12.2 percent to $10.49 after the business software maker agreed to be bought by private equity investment firm Thoma Bravo LLC in a deal valued at about $2.5 billion.
Norwegian Cruise Line Holdings Ltd said it would buy Prestige Cruises International Inc in a $3.03 billion deal, including debt. Its shares climbed 11.8 percent to $37.23.
Select Income REIT said it would buy office REIT Cole Corporate Income Trust in a $3 billion deal to expand its portfolio in the United States, as shares fell 5 percent to $26.51.
Conn's Inc tumbled 30.7 percent to $31.06 after the retailer posted second-quarter results that missed expectations and gave a full-year outlook below analysts' forecasts.
Exelixis shares plunged 55.6 percent to $1.88. The company said on Monday it would cut about 70 percent of its workforce after its experimental prostate cancer drug cabozantinib failed a late-stage study. (Reporting by Chuck Mikolajczak; Editing by Chizu Nomiyama and Nick Zieminski)