Wall Street edges up after data

NEW YORK (Reuters) - Stocks were slightly higher on Tuesday after better-than-expected data on factory orders.

The Commerce Department said new orders for manufactured goods rose 0.7 percent during May. Economists had forecast orders rising 0.2 percent.

Trading is expected to remain volatile on low volume as U.S. stock markets close at 1 p.m. ET. (1700 GMT) ahead of the Independence Day holiday on Wednesday. Volume is likely to start building up from early Thursday, ahead of Friday's non-farm payrolls data.

"Investors have to be prepped for one of two outcomes on Friday. Our baseline is at or below the consensus 90,000 figure in which case more stimulus is on the cards. The risk is a bigger number that leaves a 30-point air-pocket above the current market level," said Andrew Wilkinson, chief economic strategist at Miller & Co in New York.

A U.S. ISM manufacturing report on Monday, whose main index registered a contraction in the sector for the first time since July 2009, boosted speculation that the Federal Reserve will announce it will embark on a third round of asset purchases, known as 'QE3', perhaps as soon as the central bank's next policy meeting from July 31 to August 1.

The Dow Jones industrial average was up 21.53 points, or 0.17 percent, at 12,892.92. The Standard & Poor's 500 Index was up 3.04 points, or 0.22 percent, at 1,368.55. The Nasdaq Composite Index was up 7.48 points, or 0.25 percent, at 2,958.71.

European stocks climbed for the third session in a row as a recent raft of weak U.S. and European macro data raised investors' expectation that central banks will soon take fresh policy action to kick-start their economies.

The European Central Bank is expected to cut interest rates to a record low on Thursday but may need to do more to satisfy financial markets already starting to wonder about the solidity of last week's summit measures to tackle the euro zone crisis.

Microsoft Corp shares fell 0.5 percent to $30.39 on Tuesday after the company admitted its purchase of aQuantive, its largest acquisition in the Internet sector, was effectively worthless and wiped out any profit for the last quarter.

The U.S. Justice Department is probing Chesapeake Energy Corp and Encana Corp for possible collusion after a Reuters report showed that top executives of the two rivals plotted in 2010 to avoid bidding against each other in Michigan land deals, a source close to the probe said. Chesapeak shares wee up 1.3 percenat at $18.98.

U.S. investment management firm BlackRock is buying Swiss Re's European private equity and infrastructure fund of funds franchise, it said on Tuesday.

(Reporting By Angela Moon, editing by Dave Zimmerman)