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Stocks see-sawed on Tuesday, finishing in positive territory in choppy trading, thanks to a handful of upbeat economic reports, but worries over military action in Syria kept a lid on gains.

"The possible escalation of unrest in Syria adds uncertainty to a short-term investment outlook already muddied by talk of a shift in Fed policy and turmoil in Egypt," wrote Sameer Samana, international strategist at Wells Fargo Advisers.

"Along with the Federal Reserve's stated intention to start tapering bond purchases in the near future, this additional headwind may lead markets to tread water in the near-term."



(Read more: Watch Art Cashin: Two reasons stocks faltered)

The Dow Jones Industrial Average squeezed out a small gain to close 23 points ahead, led by United Technologies. Earlier in the day, it had climbed more than 120 points before reversing and dropping briefly into the red before rebounding in the afternoon.

The S&P 500 and the Nasdaq also ended in positive territory. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 17.



Among key S&P sectors, consumer discretionary and financials closed higher, while telecoms lagged.

(Read more: As markets fall, investors run ... toward risk?)

"The market got oversold last week and it needs to rally back some, but we won't see any gains as long as we have this overhang of military action," said Keith Bliss, senior vice president at Cuttone & Co.

During a meeting with congressional leaders at the White House, President Obama called for a prompt vote on Capitol Hill and reiterated that the U.S. plan would be limited in scope and not repeat the long wars in Iraq and Afghanistan.

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House Speaker John Boehner said he would support Obama's call for military action in Syria and urged his colleagues in Congress to do the same. The possibility of U.S. military action had roiled markets last week and stocks came off their highs in midday trading after Boehner's remarks.

Nancy Pelosi, Democratic leader in the House of Representatives, said she believes Congress will support a resolution authorizing the use of U.S. military force against Syria.

(Read more: If US bombs Syria,here's how high oil could go)

Meanwhile, a Russian news agency reports that two "ballistic objects" had been launched towards the eastern Mediterranean revived concerns about a U.S.-led strike on Syria. Israel's Ministry of Defense confirmed that Israeli forces and the U.S. Missile Defense Agency had carried out a missile test and said Israel would release further information about the launch soon.

On the M&A front, Verizon announced on Monday it will pay $130 billion to acquire Vodafone's 45-percent stake in their Verizon Wireless joint venture, marking the third-largest deal in corporate history.



Vodafone's CEO told CNBC that he will use the cash earned from the deal to accelerate investment in Vodafone's own wireless networks, and to return $84 billion in cash and shares to shareholders.

(Read more:Vodafone CEO: We will spend cash pile on our networks)

"We are fortunate enough that the size of the deal itself allows us to return a large percentage to shareholders. But even the remaining 21 percent is large enough to strengthen the company and to allow us to accelerate our strategy," CEO Vittorio Colao said.

Microsoft said it will buy Nokia's handset business for $7.2 billion. Nokia CEO Stephen Elop, a former Microsoft executive, will rejoin the company and is now seen by some as a candidate to replace retiring CEO Steve Ballmer.

Meanwhile, Time Warner Cable and CBS reached and agreement Monday, ending a month-long blackout, returning the broadcast network's programming to millions of subscribers in Los Angeles, New York and Dallas. CBS rallied to lead the S&P 500 gainers.

(Read more:Who really won the CBS-Time Warner Cable standoff)

On the economic front, the manufacturing sector grew last month to 55.7 in August, its fastest pace in more than two years, according to the Institute for Supply Management. A reading above 50 indicates expansion in the sector.

And construction spending gained 0.6 percent to an annual rate of $901 billion, according to the Commerce Department, topping expectations for a gain of 0.3 percent.

The Japanese Nikkei led Asian stocks higher, after better-than-expected manufacturing data from Europe and China lifted hopes that a global economic recovery was in progress.

Data out on Monday showed Chinese manufacturing hit a four-month high in August and euro zone factory activity rose at its fastest pace since May 2011. On Tuesday, data revealed that Britain's construction sector expanded at its fastest pace in almost six years in August.



