Manufacturing expansion slowed in August as a decline in new orders led factory managers to opt for caution, while construction spending unexpectedly fell in July, according to data released on Tuesday.

The Institute for Supply Management said its index of national factory activity eased to 52.9 last month, its lowest since March and down from 53.8 in July.

Economists had expected a more modest dip to 53.0, according to a Reuters poll, although any reading above 50 still points to expansion.

Stocks edged higher following the data's release, while bond prices were little affected and subsequently turned negative from mixed levels earlier.

Markets have been on edge for negative growth news, so this morning's numbers came as a little bit of relief (for stocks), said John Shin, senior economist at Lehman Brothers in New York.

Within the ISM data, the new orders index fell to 55.3 from 57.5, while prices paid declined to 63.0 from 65.0, providing some evidence that softer growth is putting a damper on inflation.

Construction spending fell 0.4 percent in July, its largest drop since January, the Commerce Department said. Economists polled by Reuters were expecting construction spending to remain unchanged in July from the month before.

Inflation