US STOCKS-Wall St reverses course to trade higher

* Apple (NasdaqGS: AAPL - news) hits record high in erratic trading

* Merck (Other OTC: MKGAF - news) on track for its best day since January 2014

* Feb U.S. single-family home prices rise

* Indexes up: Dow 0.3 pct, S&P 0.2 pct, Nasdaq 0.2 pct (Adds details, comment, updates prices)

By Tanya Agrawal

April 28 (Reuters) - U.S. stocks edged up in volatile trading on Tuesday, reversing earlier declines, on strong earnings from Merck, better-than-expected housing data and a dividend hike from IBM (NYSE: IBM - news) .

A majority of the ten S&P 500 sectors were up, with the teleservices index gaining 1 percent.

Apple hit a record high early on Tuesday, a day after posting strong results. The shares then fell as much as 2.3 percent, weighing on all three major indices, before recovering to trade up 0.3 percent at $133.06

U.S. single-family home prices rose more than expected in February from a year earlier, according to a closely watched survey.

"So far, the first quarter earnings have surpassed expectations and the housing numbers came in strong," said John Augustine, Chief investment officer at Huntington Bank in Columbus (Copenhagen: COLUM.CO - news) , Ohio which oversees more than $12.6 billion in funds.

"So any time you have any good economic data, the markets react positively."

Merck rose 4.8 percent to $59.85, on track for its best day since January 2014, after reporting better-than-expected results and releasing favorable data late Monday about the safety of its Januvia diabetes drug.

IBM shares ticked up 1 percent to $172.46 and were the second biggest positive influence on the Dow after Merck. IBM hiked its quarterly dividend by 18 percent, its biggest increase in five years.

Investors were also awaiting the results of a two-day Federal Reserve meeting that ends on Wednesday for clues on when the central bank will hike interest rates.

Earlier in the session, a report said an Iranian "force" seized a U.S. cargo ship after opening fire on it in the Gulf, spurring a brief rally in oil prices.

"We are on the lookout for that and that sort of geopolitical issue always drags the markets down and has certainly made people very nervous," said Kim Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburg.

At 12:21 p.m. EDT (1621 GMT) the Dow Jones industrial average was up 49.68 points, or 0.28 percent, at 18,087.65, the S&P 500 was up 3.41 points, or 0.16 percent, at 2,112.33 and the Nasdaq Composite was up 7.76 points, or 0.15 percent, at 5,068.01.

Coach (NYSE: COH - news) shares slumped 7.4 percent to $39.11, putting it on track for its steepest fall since June, after the handbag and accessories maker's quarterly sales fell short of estimates.

Dow component Pfizer (NYSE: PFE - news) and home appliances maker Whirlpool (NYSE: WHR - news) both cut forecasts, blaming the strong dollar. Whirlpool fell 5.7 percent to $186.41 while Pfizer slipped 0.4 percent to $34.44.

The dollar gained about 23 percent against a basket of major currencies over the financial year ended March 31, hurting companies with large overseas operations.

United Parcel Service (Xetra: UPAB.DE - news) rose 3.5 percent to $100.89 after it reported higher first-quarter net profit due to price increases and productivity improvements, and reaffirmed its earnings outlook for 2015.

Advancing issues outnumbered declining ones on the NYSE by 1,784 to 1,143, for a 1.56-to-1 ratio on the upside; on the Nasdaq, 1,645 issues rose and 974 fell for a 1.69-to-1 ratio favoring advancers. (Additional reporting by Caroline Valetkevitch; Editing by Savio D'Souza)