* 10-year Treasury yield inches close to key 3-pct level
* Q1 profits now seen up 19.9 pct vs 18.6 pct earlier
* Merck, Caterpillar gain on broker upgrades to “buy”
* Aluminum stocks drop as U.S. weighs Rusal sanctions relief
* Indexes: Dow and Nasdaq flat, S&P up 0.13 pct (Updates to early afternoon)
By Sruthi Shankar
April 23 (Reuters) - Wall Street’s three major indexes struggled for direction on Monday as Treasury yields inched up to levels that have spooked investors in recent months.
The yield on 10-year U.S. Treasury notes hit a four-year high of 2.998 percent, edging closer to the 3-percent level, amid worries about the growing supply of government debt and accelerating inflation as oil and commodity prices climb.
Rising bond yields usually tend to make stocks less attractive in comparison. But market strategists said a strong earnings season could help investors overlook such concerns.
“If we get to that level (3 percent on the 10-year yields), it’s not going to be too much of a negative for investors because earnings have been coming in quite good,” said Jeff Kravetz, regional investment strategist at U.S. Bank Wealth Management.
Kravetz said bonds won’t be a competition for stocks until the 10-year Treasury yield hits 4 percent.
With first-quarter results pouring in, profits are already turning out to be much stronger-than-expected, according to Thomson Reuters I/B/E/S.
Earnings at S&P 500 companies are now estimated to have risen 19.9 percent in the quarter, compared with a forecast of 18.6 at the start of the season, which would have marked the biggest growth in seven years.
This week, 181 S&P 500 companies are scheduled to report including some of the technology heavy-hitters like Facebook , Microsoft, Amazon and Intel. Alphabet reports after markets close on Monday.
“We’ve got great consumer sentiment and inflation is still contained. But as rates go up, and we do get risk up in the system,” Kravetz said.
At 13:54 p.m. ET, the Dow Jones Industrial Average was up 6.89 points, or 0.03 percent, at 24,469.83, the S&P 500 was up 3.59 points, or 0.13 percent, at 2,673.73 and the Nasdaq Composite was down 1.42 points, or 0.02 percent, at 7,144.71.
Five of the 11 major S&P sectors were higher, with the biggest boost coming from a rise of about 0.4 percent in both the healthcare and consumer discretionary indexes.
Merck rose 3 percent on a Goldman Sachs upgrade to “buy”, while fellow Dow component Caterpillar gained 0.7 percent after Citigroup raised the rating to “buy”.
Among other healthcare gainers was Henry Schein, which rose 6.7 percent after the dental equipment maker said it would spin off its animal health unit.
Shares of aluminum companies fell after the U.S. opened the door to sanctions relief for Russian aluminum giant United Company Rusal Plc. Alcoa tumbled 14 percent and Arconic’s 4.7 percent drop made it the biggest loser on the S&P.
Declining issues outnumbered advancers by a 1.16-to-1 ratio on the NYSE and by a 1.29-to-1 ratio on the Nasdaq.
The S&P index recorded six new 52-week highs and 13 new lows, while the Nasdaq recorded 63 new highs and 58 new lows. (Reporting by Sruthi Shankar in Bengaluru; Editing by Shounak Dasgupta)