* Stocks were negative earlier on weak manufacturing data
* August homebuilder sentiment highest in nearly a decade
* Zulily soars on Liberty Interactive's $2.4 bln buyout offer
* Tesla jumps after Morgan Stanley upgrade
* Indexes up: Dow 0.3 pct, S&P 0.4 pct, Nasdaq 0.6 pct (Updates to early afternoon)
By Tanya Agrawal
Aug 17 (Reuters) - Wall Street rose in early afternoon on Monday, erasing losses from earlier in the session, in light trading activity after data showed that U.S. homebuilder sentiment in August rose to a near decade-high.
U.S. stocks had fallen at the open after data showed a surprise fall in manufacturing activity in the state of New York in August.
But, the markets staged a turnaround after the National Association of Home Builders said more builders viewed market conditions as favorable than not.
The news also gave a boost to housing-related companies, with shares of D.R. Horton, Toll Brothers, Lennar Corp, PulteGroup and KB Home up between 1 and 2 percent.
With the U.S. earnings season winding down, investors are perusing all data for clues regarding the health of the economy and the timing of an interest rate hike, especially ahead of Wednesday's minutes of the most recent Federal Reserve meeting.
"Investors are in pause mode leading up to the Fed minutes later this week," said Terry Sandven, chief equity strategist at U.S. Bank Wealth Management in Minneapolis.
"The manufacturing data did cause some weakness today because it adds to the uncertainty before the rate hike decision and since the global economy is showing varying degrees of growth."
At 13:00 p.m. ET (1700 GMT) the Dow Jones industrial average was up 46.3 points, or 0.26 percent, at 17,523.7. The S&P 500 was up 7.92 points, or 0.38 percent, at 2,099.46 and the Nasdaq composite was up 29.41 points, or 0.58 percent, at 5,077.64.
Nine of the 10 major S&P 500 sectors were higher with the consumer discretionary index's 0.8 percent rise leading the advancers.
The energy index was the lone laggard and fell 0.3 percent as oil prices fell, with U.S. crude near 6-1/2-year lows.
U.S. stocks have been stuck in a tight trading range since the beginning of the year and are expected to trade sideways for much of the year.
"The last two weeks of August have historically been a little quiet because of vacation mode both in Europe and the U.S.," said Brian Fenske, head of sales trading at ITG in New York.
Goldman Sachs said it expects the S&P 500 to end the year flat due to high starting valuations, negligible earnings growth, outflow from domestic equity mutual funds and modest economic growth.
With 92 percent of the S&P 500 companies having reported so far, second-quarter earnings are expected to have edged up 1.2 percent, while revenue is expected to have fallen 3.5 percent, according to Thomson Reuters data.
Tesla rose 4.4 percent to $253.77 after Morgan Stanley raised its price target on the stock to $465 from $280 and said Tesla was its top pick among U.S. automakers.
Zulily soared 47.2 percent to $18.50 after John Malone's Liberty Interactive said it would buy the online retailer for $2.4 billion. Liberty was down 1.8 percent at $29.73.
Estee Lauder fell 6.5 percent to $83.08 after the cosmetics maker reported lower-than-expected quarterly sales.
Advancing issues outnumbered decliners on the NYSE by 1,701 to 1,268. On the Nasdaq, 1,632 issues rose and 1,095 fell.
The S&P 500 index showed 24 new 52-week highs and 12 new lows, while the Nasdaq recorded 67 new highs and 68 new lows. (Reporting by Tanya Agrawal in Bengaluru; Editing by Savio D'Souza)