* Citigroup beats on earnings, lifting sector
* Apple, IBM hit 52-week highs ahead of earnings
* Indexes: Dow up 0.7 pct; S&P up 0.7 pct; Nasdaq up 0.5 (Updates to close)
By Edward Krudy
NEW YORK, Oct 18 (Reuters) - U.S. stocks advanced on Monday as a stronger-than-expected profit from Citigroup helped financial shares shake off worries that the foreclosure mess could threaten the stability of the housing market.
IBM shares hit a 52-week high while Apple reached an intraday life high of $319 before reporting earnings after the market closed.
Citigroup gained 5.6 percent to $4.17 after it reported its third consecutive quarterly profit, the second major U.S. bank to beat estimates after JPMorgan Chase and Co last week. The KBW Bank index rose 3 percent, recovering some of the losses banks had in the last few days.
"It is very much an earnings-driven day, it's very much about the fact that the banks are trading well," said Nick Kalivas, an analyst at MF Global in Chicago. "People are comfortable with what Citigroup had said about the foreclosure issue."
The Dow Jones industrial average rose 80.91 points, or 0.73 percent, at 11,143.69. The Standard & Poor's 500 Index gained 8.52 points, or 0.72 percent, at 1,184.71. The Nasdaq Composite Index added 11.89 points, or 0.48 percent, at 2,480.66.
Citigroup said it is looking at the home loans it bundled into bonds and sold to investors. So far, it has not found any problems.
The largest U.S. bank, Bank of America, reports earnings on Tuesday. Bank of America's shares rose 3 percent to $12.40.
Before the close on Monday, around 10 percent of S&P 500 companies had reported earnings, with 84 percent of those beating expectations, according to data compiled by Thomson Reuters.
Apple shares hit a life high during the day as analysts expect fourth-quarter earnings to showcase Apple's powerful one-two punch of the iPhone and the iPad.
Apple's shares closed up 0.4 percent to $315.79. Traders in Apple's options were pricing in a potential post-earnings swing of about 7.5 percent.
Shares of IBM rose 1.3 percent to $142.83 and were the top boost to the Dow industrials before the company's earnings report. Investors hoped a new mainframe computer and a recovery in global tech spending had buoyed earnings.
Northeast Utilities will buy NSTAR in a $4.2 billion all-stock deal to create one of the largest U.S. utilities, the companies said. Shares in both companies fell, with Northeast down 0.9 percent to $30.42 and NSTAR off 0.6 percent to $39.30. (Reporting by Edward Krudy; Additional reporting by Doris Frankel; Editing by Kenneth Barry)