* Caterpillar sees tough Q3, stock cuts gains
* Fed Chairman Bernanke cautious about economy
* Dow up 0.5 pct; Nasdaq and S&P 500 inch up (Updates to late afternoon, changes byline)
By Ellis Mnyandu
NEW YORK, July 21 (Reuters) - The Dow rose on Tuesday as a solid profit from Caterpillar Inc eclipsed unease about the company's outlook for the current quarter, while both the Nasdaq and the S&P 500 clung to tiny gains after a round of profit-taking.
Trading was choppy, with the broader market initially charging higher after the open and the benchmark S&P 500 hitting a fresh 2009 intraday high as it extended its rebound from the 12-year lows of early March.
Heading into Tuesday's session, investors were encouraged by another round of strong profit reports from major bellwethers that included drugmaker Merck & Co, but that optimism was met with a dose of reality when heavy equipment maker Caterpillar warned the current quarter could be tough.
In addition, U.S. Federal Reserve Chairman Ben Bernanke said in testimony before a congressional panel that mounting joblessness, slumping home values and tight credit were likely to curb consumer spending -- a major driver of U.S. economic growth and corporate profits.
"People can get a bit euphoric with a couple of positive economic numbers and earnings ... but you're going to have to see how this pans out over the long term," said Stephen Carl, principal and head of U.S. equity trading at The Williams Capital Group in New York.
"I think you do a little profit-taking now, go through the summer and see how the rest of second-quarter earnings come out, and then kind of ascertain what's going on after that."
The Dow Jones industrial average gained 43.76 points, or 0.50 percent, to 8,891.91. The Standard & Poor's 500 Index was up just 0.06 of a point, or 0.01 percent, at 951.19. The Nasdaq Composite Index was up 1.51 points, or 0.08 percent, at 1,910.79.
Shares of Caterpillar, up 8.1 percent at $39.62, gave the biggest boost to the Dow, but were off the day's high after the company said it expects the third quarter to be the year's weakest and "extremely challenging."
Merck said second-quarter earnings fell, hurt by lower sales of its cholesterol drugs, but income from partnerships and a rebound in sales of asthma drug Singulair helped the drugmaker beat profit forecasts.
The stock, up 6.2 percent at $29.67, ranked second among the Dow's biggest advancers. The pharmaceuticals index was up 1.5 percent.
But shares of United Technologies Corp, a diversified manufacturer fell 2.2 percent to $53.76 after it posted a 23 percent drop in profit and lowered its 2009 outlook.
On Nasdaq, shares of iPod and iPhone maker Apple Inc were a top drag, falling 1.2 percent to $151.11. The technology bellwether is scheduled to post quarterly results after the bell.
In regulatory news, the U.S Treasury Department sent to Congress a draft bill that would curb the power of credit ratings agencies.
Moody's Corp shares dropped 7.2 percent to $26.55, and shares of McGraw-Hill, which owns Standard & Poor's, fell 2 percent to $32.37.
Also on the defensive were shares of Regions Financial Corp and Comerica Inc, two large U.S. regional banking companies. Both posted second-quarter losses as a deteriorating commercial property market caused bad loans to soar. Regions' stock slid 15.8 percent to $3.40 and Comerica's stock lost 10.2 percent to $20.49.
The KBW Bank Index dropped 3.8 percent.
Troubled lender CIT Group Inc warned on Tuesday it could still file for bankruptcy if a debt swap failed, one day after securing $3 billion in emergency financing from its bondholders. Its stock tumbled 20 percent to $1.00. (Reporting by Ellis Mnyandu; Editing by Jan Paschal)