Stocks rose on Friday on strength from Caterpillar and other industrials, lifting the Dow and Nasdaq to their best monthly performance since December.

Heavy machinery manufacturer Caterpillar Inc led the way after reporting a fivefold increase in profit and raising its full-year forecast.

Now that earnings are coming in, the investment community is telling you that once some of these negative issues subside -- sovereign debt, Middle Eastern tensions -- this market is going to rip, said Jason Weisberg, managing director at Seaport Securities Corp.

The blue-chip Dow average climbed 4 percent for the month while the S&P 500 rose 2.8 percent and the Nasdaq gained 3.3 percent.

You take that entire mixture and the market took all of that simultaneously -- they weren't separate events -- they were all concurrent. And we couldn't blast the market below 12,000, Weisberg said.

Concerns that the market would pull back after earnings are somewhat offset by favorable corporate outlooks and expectations for continued easy money policies from the Federal Reserve that have fueled runs in speculative assets.

April's gains were limited by slides in Microsoft Corp , the Nasdaq's most heavily traded stock, and BlackBerry maker Research in Motion .

Caterpillar gave the top boost to the Dow, advancing 2.5 percent to $115.41, after reaching an all-time high of $116.25 during the session. The S&P industrial sector index <.GSPI> added 0.3 percent. Caterpillar is up more than 20 percent so far this year, along with fellow industrial Boeing Co .

Microsoft dropped 3 percent to $25.92 and was the biggest drag on the blue-chip Dow after it reported a drop in quarterly sales of its Windows software, mirroring a recent downturn in demand for personal computers. U.S.-listed shares of Research in Motion tumbled 14 percent to $48.65 after the BlackBerry maker cut its first-quarter forecasts.

The Dow Jones industrial average <.DJI> gained 47.23 points, or 0.37 percent, to 12,810.54. The Standard & Poor's 500 Index <.SPX> rose 3.13 points, or 0.23 percent, to 1,363.61. The Nasdaq Composite Index <.IXIC> edged up 1.01 points, or 0.04 percent, to 2,873.54.

For the week, the Dow rose 2.4 percent, the S&P 500 gained 2 percent and the Nasdaq advanced 1.9 percent.

Merck & Co Inc reported higher-than-expected quarterly earnings, fueled by strong sales of drugs for diabetes, asthma and rheumatoid arthritis, while Chevron Corp reported a jump in earnings as oil prices surged.

Shares of Merck rose 0.45 percent to $35.95 while Chevron added 0.6 percent to $109.44. Both stocks are Dow components.

Robust corporate earnings, ample liquidity from the Federal Reserve and the prospect of ultra-low interest rates for the rest of the year have sparked bullishness, pushing the Nasdaq to a 10-year high and lifting the S&P 500 more than 8 percent this year. The major U.S. stock indexes also hit new yearly highs during the week.

The rebalancing by Nasdaq OMX of its benchmark Nasdaq 100 index <.NDX> will take place on May 2, in which the exchange said it will cut the weight of 82 securities to bring them more in line with their market capitalizations. Apple Inc will see its weighting dropped to 12.3 percent from 20.3 percent.

With May, the market is heading into a typically weak period. May has been the fourth-weakest month for the Dow, averaging a 0.2 percent gain since 1950, according to the Stock Trader's Almanac. It also normally marks the start of the worst six months of the year for the industrials.

Volume was light, with about 7.17 billion shares traded on the New York Stock Exchange, NYSE Amex and Nasdaq, below the daily average of 7.72 billion.

Advancing stocks outnumbered declining ones on the NYSE by 1,953 to 1,028, while on the Nasdaq, advancers beat decliners 1,417 to 1,146.

(Reporting by Chuck Mikolajczak; Editing by Jan Paschal)

Dow jones Microsoft