Pending home sales rose 6.3 pct in December… Merck gains after beating expectations… SanDisk sheds 23 pct, limits Nasdaq gains… Dow up 0.6 pct, S&P up 0.5 pct, Nasdaq 0.2 pct…

U.S. stocks edged up on Tuesday after a surprising rise in December pending home sales and strong earnings from drugmaker Merck tempered worries about the economy and an otherwise gloomy quarterly results season.

But Nasdaq’s gains were limited as a poor revenue outlook from flash memory card maker SanDisk Corp , whose chips are used in products including cell phones and digital cameras, signaled slower consumer spending in the technology sector.

Still, investors saw a glimmer of hope in the housing market after pending sales of existing homes rose 6.3 percent, lifting an index of home builder stocks  nearly 6 percent.

Wall Street was also helped by news that the Federal Reserve extended, by six months, programs designed to funnel billions of U.S. dollars to markets worldwide to keep money flowing in the battered banking system.

“We have a lot of investors desperately looking for signs that fundamental improvement is on the horizon,” said Craig Peckham, equity trading strategist for Jefferies & Co in New York. “The Fed is extending liquidity programs and telling you in same breath that conditions remain quite strained.”

The Dow Jones industrial average added 43.32 points, or 0.55 percent, at 7,980.15. The Standard & Poor’s 500 Index  gained 3.91 points, or 0.47 percent, at 829.35. The Nasdaq Composite Index  rose 3.05 points, or 0.20 percent, at 1,497.48.

Cost cuts and favorable taxes helped Merck & Co and Schering-Plough Corp post quarterly results above Wall Street estimates. Merck was among the Dow’s biggest boosts, up 5.5 percent to $29.99, while Schering-Plough rose 5.3 percent to $18.40.

Pending sales of existing U.S. home rebounded in December, according to data based on contracts signed, a promising indication after months of negative data.

No. 1 U.S. home builder D.R. Horton was the top percentage gainer on the New York Stock Exchange, surging more than 18 percent to $7.23. It reported a smaller-than-expected quarterly loss on Tuesday.

Luxury home builder Toll Brothers gained 4.2 percent to $17.70, while No. 3 U.S. home builder, Pulte Homes , rose about 3.5 percent to $10.60, ahead of its expected results on Wednesday.

But the Nasdaq was hurt after SanDisk warned that revenue for the current quarter would fall short of expectations and said it may undertake an equity offering that could dilute shares by as much as 20 percent. The stock plunged nearly 23 percent to $8.71.

Losses still plagued banks amid a lack of definitive measures to steady the sector. The KBW index of banking shares fell nearly 6 percent as investors worried that the government may have to nationalize the sector, or parts of it.

Bank of America tumbled 9.5 percent to $5.44, while Citigroup shed nearly 5 percent to $3.47, after hitting a session low.

Stability in the housing market and financial sector is critical to the recovery of the U.S. economy, which slipped into recession in December 2007. Investors are bracing for the U.S. payrolls report for January that is due for release on Friday morning, which could pin unemployment at 7.5 percent, the highest rate since September 1992.

“It’s going to be tough to get anything really going before we get to that jobs report on Friday,” said Marc Pado, U.S. market strategist at Cantor Fitzgerald & Co in San Francisco. “It’s looming like a dark cloud.”

NEW YORK, Feb 3 (Reuters)