Strong quarterly results from Caterpillar and Merck on Friday looked set to drive the Dow to its best month since December, with a bullish stock market on course to buck a seasonally weak May.

Caterpillar Inc , the world's largest maker of heavy equipment, reported a fivefold surge in quarterly profit early Friday, sending its stock up 2.3 percent to $115.27, a new all-time high.

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 the S&P 500 up over 8 percent this year.

The Dow industrials and the Nasdaq were set for their best month since December as major indexes broke out to new yearly highs during the week.

Peter Jankovskis, co-chief investment officer at OakBrook Investments in Lisle, Illinois, said the market could run into trouble mid-May, when the earnings season winds down, especially given signs of softness in the economy.

Once we get past (earnings), it is going to be awful tough, he said. As the memory of strong earnings begins to fade we probably will go back into a sideways market.

The Dow Jones industrial average <.DJI> rose 22.75 points, or 0.18 percent, at 12,786.06. The Standard & Poor's 500 Index <.SPX> fell 1.07 points, or 0.08 percent, at 1,359.41. The Nasdaq Composite Index <.IXIC> fell 6.93 points, or 0.24 percent, at 2,865.60

There is a big bias toward the market going up, and we've seen this through good news and what we would consider bad news. The market kind of shrugs it all off and keeps marching higher, said Kim Caughey Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh.

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 marks the start of the worst six months of the year for the industrials and has given rise to the adage, sell in May and go away.

Merck & Co Inc reported higher-than-expected quarterly earnings, fueled by strong sales of drugs for diabetes, asthma and rheumatoid arthritis. Its shares rose 1 percent to $36.13.

Chevron Corp , the No. 2 U.S. oil company, reported a jump in quarterly earnings as oil prices surged and refining profits improved along with the global economy. The shares rose 0.3 percent to $109.07.

Research in Motion Ltd slumped 14 percent to $48.69 a day after the BlackBerry maker cut its first-quarter outlook, while Microsoft Corp fell 3.7 percent to $25.71 after recording a dip in quarterly sales of its core Windows operating system.

The dollar held near a three-year low against a basket of currencies and was on track for its biggest weekly fall since mid-January, with more losses possible due to end-of-the-month demand to sell dollars.

Fort Pitt's Caughey Forrest said the weak dollar was pushing up commodity prices and increasing costs for companies, which could ultimately hit the consumer and be a negative for the economy.

There is no real mechanism for wages to start rising, so people are going to have to stop consuming if things get too expensive and that's not good for the economy, she said.

Goodyear Tire & Rubber Co shot up 11 percent to $18 after the company posted a profit four times higher than Wall Street expected.

In the latest economic news, U.S. consumer sentiment rose in April as the sharp increase in gasoline prices was viewed as being temporary, a survey released on Friday showed.

(Editing by Jeffrey Benkoe)