NEW YORK (CNN/Money) - Positive manufacturing data and bargain hunting lifted U.S. stocks on the first trading day of the month Monday, and investors will look to Cisco's quarterly results and a report on factory orders Tuesday to see if the markets can pull off another day of gains.

The Dow Jones industrial average (up 56.01 to 8109.82, Charts) ended the day up about 0.70 percent and the S&P 500 index (up 4.62 to 860.32, Charts) gained 0.54 percent, both logging a second straight day of gains on the first trading day of the month, after a weak January.

Meanwhile, the Nasdaq composite (up 2.88 to 1323.79, Charts) rose 0.22 percent

"Today we had some positive economic data and we came into the market oversold," said Art Hogan, chief market analyst at Jefferies & Co. "I don't think we've fixed the oversold position -- I think we're still cheap. Tomorrow there will be some focus on factory orders and Cisco earnings."

Investors likely will look to an earnings report from tech heavyweight Cisco Systems (CSCO: up $0.11 to $13.48, Research, Estimates) for direction Tuesday -- which could help the markets add to gains. Economists expect the networking provider to post fourth-quarter earnings of 13 cents a share, up from 9 cents a year earlier, according to a survey by Briefing.com.

Also on the docket Tuesday, the government plans to release its report on factory orders for December. Economists surveyed by Briefing.com expect an increase in orders of 0.3 percent compared with a decline of 0.8 percent in November.

U.S. markets are coming off three straight weeks of declines, which led some traders to look for bargains Monday. This period, encompassing the past few and next few trading days, also has been historically strong as a result of money flows into mutual funds.

In early trading Monday, an industry report said manufacturing grew for the third straight month in January, though at a slower pace than in December, coming in close to forecasts and giving a small lift to stocks. The Institute for Supply Management said its index of manufacturing fell to 53.9 from a recently revised 55.2 in December, close to economists' forecasts of 54, according to Briefing.com. A reading above 50 points to expansion in manufacturing.

The government also said construction spending grew 1.2 percent in December from a 0.9 percent rise in November, a much stronger reading than expected. Economists had expected spending to grow 0.4 percent.

But despite strength on the day, traders said lingering concerns of a possible war with Iraq and uncertainty over the economy would eventually overpower a rally.

"The trading range [continues to] become tighter until we get some resolution of geopolitical issues," said Jack Conlon, equities trader at Putnam Lovell. "The jury is still out in terms of the economy. There's no impetus for any kind of sustainable recovery."

The Columbia space shuttle disaster Saturday weighed on the stocks of some companies involved with NASA but didn't have much impact on the broader market. The New York Stock Exchange observed two minutes of silence at 11 a.m. ET to remember the seven astronauts killed when the nation's oldest shuttle disintegrated over Texas during landing preparations Saturday.

Swirling uncertainty over the cause of the shuttle breakup and the timeframe for the next space flight pulled down shares of Alliant Techsystems (ATK: down $6.34 to $48.02, Research, Estimates), which derives nearly a fifth of its sales from the shuttle program. Dow component Boeing (BA: down $0.48 to $31.11, Research, Estimates), which took over Rockwell International's space business in 1996, and Lockheed Martin (LMT: down $1.50 to $49.55, Research, Estimates), both also contract space shuttle work.

Chip shares showed resilience even after the World Semiconductor Trade Association said global chip sales dropped 2.3 percent in December. The group also said global semiconductor sales grew just 1.3 percent to $140.7 billion in 2002. A Lehman Brothers upgrade of RF Micro Devices (RFMD: up $0.43 to $6.05, Research, Estimates) gave a lift to that stock, despite the report.

But weakness in the telecom sector following mobile phone maker Ericsson's weak quarterly report and forecast kept the techs subdued.

Ericsson (ERICY: down $0.83 to $7.30, Research, Estimates) posted its seventh consecutive quarterly loss, saying sales fell 37 percent in the fourth quarter, missing analysts' forecasts. Looking ahead, the company said demand for mobile phone equipment will fall again, by as much as 10 percent this year. However, the Swedish company added that its business started to stabilize in the fourth quarter.

Shares of telecom companies AT&T (T: down $0.46 to $19.02, Research, Estimates) and Level 3 (LVLT: down $0.10 to $4.95, Research, Estimates) trended lower, weighed by the Ericsson report.

Investors seemed to push the possibility of war with Iraq to the back of their minds, with the next big related event an address by Secretary of State Colin Powell before the United Nations Wednesday. Powell is expected to give detailed evidence that Iraq is hiding evidence of weapons of mass destruction from U.N. inspectors, according to administration officials.

Separately, the Bush administration unveiled its fiscal 2004 budget, which includes projections of a big budget deficit this year and in fiscal 2004, which starts Oct. 1, as well as forecasts for a pickup in economic growth.

Photography company Eastman Kodak (EK: up $1.30 to $31.60, Research, Estimates) helped the Dow higher after a Barron's article over the weekend cited Legg Mason Value Trust's manager as saying the stock is worth about $50 a share; it currently trades in the low 30s.

Ford Motor (F: Research, Estimates) reported a broad-based improvement in new vehicle sales in January. The No. 2 automaker had a 4.1 percent increase in U.S. sales, with gains for both cars and light trucks, such as sport/utility vehicles, pickups and vans.

But competitor General Motors (GM: up $0.43 to $36.76, Research, Estimates), the world's largest automaker, said U.S. new vehicle sales fell 2 percent to 293,086. Its key light truck models fell 19 percent to 148,611. Its shares rose on the back of Ford despite the weak report.

Asian-Pacific stocks finished mostly higher, with Tokyo's Nikkei index up 1.9 percent. Strength in insurance issues boosted Europe, where most indexes ended the day higher.

Treasury prices fell, in part because market participants expect that the government will need to issue more bonds to help shore up record deficits. The yield on the 10-year note rose to 3.99 percent from 3.97 percent late Friday.

The dollar continued its bounceback against the yen, but held steady versus the euro. Japanese officials revealed that they had bought nearly $6 billion in greenbacks in a bid to weaken the yen. The strong yen hurts Japan's export-oriented economy and deepens deflationary pressures.

Light crude for March delivery slipped 75 cents to $32.76 a barrel. OPEC ministers meeting in Abu Dhabi said that crude supplies were ample and that they may cut production as early as next month. OPEC worries that with Venezuelan production expected to come back on line and home heating demand falling off in the spring, it may face a glut.

Gold for April delivery rallied $2.50 to $371.60 an ounce.

Market breadth was mixed. On the New York Stock Exchange, advancers edged past decliners 6-to-5 as 1.21 billion shares traded. On the Nasdaq, losers beat winners 6-to-5 as 1.23 billion shares changed hands.