* Construction spending unexpectedly rises in Sept
* Investors look ahead to Fed meeting, elections
* Indexes up: S&P 0.5 pct, Dow 0.5 pct, Nasdaq 0.1 pct (Updates to midday, changes byline)
By Caroline Valetkevitch
NEW YORK, Nov 1 (Reuters) - U.S. stocks edged higher on Monday as U.S. and Chinese data underscored the view that the recovery is on track, fueling gains in energy and industrial shares.
Weakness in the euro against the dollar helped to limit the advance, however, with the dollar having developed an inverse relationship with stocks lately.
The market's positive start to November followed gains of 12.5 percent by the benchmark S&P 500 in September and October.
The S&P energy index rose 0.9 percent as reports showed U.S. factory activity in October expanded and construction spending rose unexpectedly in September. Other data showed manufacturing in China expanded at the fastest pace in six months in October.
"The data today reinforces that we have a sustainable expansion, albeit it's below average," said Henry Smith, chief investment officer at Haverford Trust Co. in Philadelphia.
"It's good to see the market reacting to the positive data, although our expectation is that ... this might be short-lived because it has the feel that we're buying into the two big pieces of news this week... We wouldn't be surprised to see a little bit of selloff on Wednesday."
U.S. voters go to the polls on Tuesday to decide congressional and other races, while the Federal Reserve begins a two-day policy meeting.
The market has risen in recent months mainly on expectations the Fed will add monetary stimulus this week and also that Republican Party will make gains in Congress.
The anticipated change is due to concern about high unemployment and consumers' views on how Democratic President Barack Obama is handling the economy.
The Fed is expected to announce on Wednesday it will relaunch heavy bond buying. Most analysts expect the size and the scope of asset purchases to be about $100 billion a month, starting with a plan to buy $500 billion in bonds between now and early 2011.
The Dow Jones industrial average was up 49.72 points, or 0.45 percent, at 11,168.21. The Standard & Poor's 500 Index was up 5.49 points, or 0.46 percent, at 1,188.75. The Nasdaq Composite Index was up 2.90 points, or 0.12 percent, at 2,510.31.
On the Dow, shares of Caterpillar rose 1.4 percent to $79.66, while shares of Exxon Mobil rose 0.8 percent to $67. Oil futures rose $1.83 to $83.26.
Among decliners Amazon.com was down 1.6 percent at $162.62. The stock fell 2.3 percent last week, but was up 32 percent from the beginning of September through the end of October.
The euro fell as low as $1.3864 as the dollar strengthened on the U.S. manufacturing data, helping to keep some of the market gains in check.
"Strength in the dollar definitely has a dampening effect on the move higher," said Peter Kenny, managing director at Knight Equity Markets in Jersey City, New Jersey.
In the financial sector, Wilmington Trust Corp fell 42.5 percent to $4.09 after the company said it will merge with M&T Bank Corp, a deal worth $351 million. M&T shares were up 3.9 percent at $77.63. (Reporting by Caroline Valetkevitch, with additional reporting by Edward Krudy; Editing by Kenneth Barry)