* CIT rescue bid lifts sentiment
* Caterpillar, Cisco and Disney shares upgraded
* Dow up 0.8 pct; S&P 500 and Nasdaq up 0.7 pct (Updates to mid-afternoon, changes byline)
By Ellis Mnyandu
NEW YORK, July 20 (Reuters) - U.S. stocks rose on Monday after CIT Group Inc was thrown a financial lifeline to avoid bankruptcy and investors bet this week's corporate earnings will reinforce recovery optimism.
CIT, a lender to nearly one million small- and mid-sized U.S. companies, reached a deal with bondholders to provide $3 billion in emergency financing, a source familiar with the situation said. CIT's shares rose 80 percent to $1.26.
Investors were encouraged by signs that the CIT rescue was a private-sector measure instead of a government bailout.
"The private money is really the smarter money. They are not going to go in there unless they think it's going to work," said Tom Alexander, head of Alexander Trading, in Savannah, Georgia. "I think that's a healthy sign for the market and a sign of liquidity and a willingness of private participants to step up to the plate."
The Dow Jones industrial average jumped 66.43 points, or 0.76 percent, to 8,810.37. The Standard & Poor's 500 Index climbed 6.76 points, or 0.72 percent, to 947.14. The Nasdaq Composite Index rose 13.96 points, or 0.74 percent, to 1,900.57.
The market's advance put both the Dow and the benchmark S&P 500 on the cusp of reaching new intraday highs since the market fell to 12-year lows in early March. Earlier in the day, the Nasdaq hit its highest intraday point since October 2008.
Analysts who focus on technicals expect more upward momentum if the S&P 500 breaks through near-term resistance at the 950 level.
The earnings season picks up pace this week after a strong start from companies such as Goldman Sachs Group Inc and Intel Corp.
Several analysts upgraded key bellwether issues, including three Dow components.
Bank of America-Merrill Lynch raised Caterpillar Inc to "buy," saying the second quarter could mark a bottom for the construction sector.
Caterpillar advanced 7.2 percent to $36.43, making the stock a top boost to the Dow, followed by United Technologies Corp -- another big manufacturer -- up 1.7 percent to $54.72.
Elsewhere, Credit Suisse upgraded Cisco Systems Inc to "outperform," saying field checks indicating that business trends were improving throughout the quarter. Cisco's routers and other networking gear form a backbone of corporate technology infrastructure.
Cisco shares added 2.6 percent to $21.04.
Morgan Stanley lifted Walt Disney Co, a major proxy for consumer spending, to "overweight" from "equal-weight" as part of a larger call on the media sector, which was raised to "attractive." Disney gained 2.6 percent to $25.13.
Halliburton Co, Johnson Controls Inc, Eaton Corp and Hasbro Inc all advanced after quarterly results impressed investors.
Chipmaker Texas Instruments Inc is due to post quarterly numbers after the bell.
Driven higher by corporate earnings, the broad S&P 500 finished up 7 percent last week, its best week since mid-March. The S&P 500 is up almost 40 percent from the 12-year closing low on March 9.
On the economic data front, an index gauging U.S. economic prospects increased for a third straight month in June, suggesting the recession was drawing to a close, the Conference Board said.