U.S. stocks advanced in early trade on Friday, following stronger-than-expected earnings from major companies including Caterpillar and Merck.

The S&P 500 Index gained 1.37 points, or 0.10 percent, to trade at 1,361.85 at 9:50 a.m. EDT. The Dow Jones Industrial Average advanced 41.14 points, or 0.32 percent, to trade at 12,804.45. The Nasdaq Composite Index advanced 0.05 percent.

Caterpillar Inc. (NYSE:CAT) shares advanced 2.84 percent to $115.74 in early trade. The company reported first quarter net income of $1.225 billion or $1.84 per share compared to $233 million or $0.36 per share in the same quarter last year. Sales and revenues rose to $12.949 billion from $8.238 billion in the first quarter of 2010.

Merck & Co Inc. (NYSE:MRK) shares advanced 0.42 percent to $35.91 in early trade. The company reported first quarter net income of $2.86 billion or $0.92 per share compared to $2.61 billion or $0.83 per share in the same quarter last year. Analysts’ expected a net income of $0.84 per share for the first quarter.

Meanwhile, Microsoft Corp. (NASDAQ:MSFT) shares declined 2.06 percent to $26.18 in early trade. Profit for the third quarter was $5.2 billion or $0.61 per share, compared to $4.0 billion or $0.45 per share last year. Revenue rose to $16.4 billion from $14.5 billion, driven by strong sales of Office 2010, Xbox and Kinect. Analysts had expected earnings of $0.56 per share on revenue of $16.19 billion.

Research In Motion Ltd. (NASDAQ:RIMM) shares slumped13.75 percent to $48.83, as it cut guidance for the first quarter, expecting weaker-than-expected shipment volumes of BlackBerry smartphones and a shift in the projected mix of devices shipped towards handsets with lower average selling prices.

On the economic front, personal spending and income in the US rose more than expected in March, while Fed’s favorite gauge for inflation remained well under control in March despite rising energy prices.

Personal spending rose 0.6 percent in March month-on-month and income increased by 0.5 percent, while markets had expected the income and spending to rise 0.4 percent and 0.5 percent respectively. However, core personal consumption expenditures (PCE) price index, which excludes food and energy prices, increased 0.1 percent in line with the economists' expectations.

The euro advanced 0.14 percent to 1.4843 against the dollar and the yen gained 0.06 percent against the greenback.

Crude oil futures advanced 0.25 percent to $113.14/barrel and gold futures gained 0.47 percent.