NEW YORK (CNN/Money) - U.S. stocks closed higher Monday, but off their best levels, as profit taking cut into the impact of strong earnings from Citigroup and Bank of America, two high-profile mergers, and upgrades of Dow components Intel and Johnson & Johnson, both of which are due to report results Tuesday.

In addition to earnings news, Tuesday's trade will likely be focused on what Federal Reserve Chairman Alan Greenspan has to say to Congress at the start of his two days of testimony on the health of the economy. In light of some of the recent improved earnings reports and forecasts, many market watchers will be particularly eager to hear whether the Fed chair sees any similar growth in the economy.

Intel (INTC: up $0.68 to $24.02, Research, Estimates) is due to report earnings after the bell Tuesday. The No. 1 chipmaker is forecast to have earned 13 cents per share, up from 9 cents a year earlier, according to a consensus of analysts surveyed by First Call. Ahead of this, Merrill Lynch upgraded the No. 1 chipmaker to "buy" from "neutral," sending the shares almost 3 percent higher.

"I think people assume Merrill wouldn't say something like that unless they expect pretty good news from Intel when it reports tomorrow after the bell," said Brian Finnerty, senior vice president, Melhado Flynn & Associates. "Intel is the technology bellwether, so if things look good for them, that bodes well for other techs."

Ahead of the Intel report, earnings are due from Johnson & Johnson and Merrill Lynch.

Johnson & Johnson (JNJ: up $1.72 to $53.60, Research, Estimates) is forecast to have earned 69 cents per share, 9 cents better than a year earlier, according to First Call. Ahead of the report, Bear Stearns upgraded the Dow stock to "outperform" from "peer perform," saying that its valuation looks attractive. Shares rose 3.3 percent.

Merrill Lynch (MER: up $1.86 to $51.41, Research, Estimates) is also due to report results before the bell Tuesday. The firm is forecast to have earned 72 cents per share, up from 66 cents a year earlier.

Also reporting earnings tomorrow: FleetBoston (FBF: up $0.89 to $31.54, Research, Estimates), Forest Labs (FRX: down $0.12 to $54.33, Research, Estimates), and Maytag (MYG: up $1.10 to $26.35, Research, Estimates) before the bell, and Applied Micro Circuits (AMCC: up $0.08 to $6.65, Research, Estimates), Motorola (MOT: down $0.01 to $9.50, Research, Estimates), and R.F. Micro Devices (RFMD: up $0.37 to $6.96, Research, Estimates) after the bell.

Tuesday also brings some economic news before the bell. The July New York Empire State index, a regional manufacturing report, expected to fall to 20.0 from 26.8 last month, according to a Briefing.com survey of economists.

June retail sales are forecast to have risen to 0.4 percent after rising 0.1 percent in May. Sales, excluding autos, are expected to have risen by 0.3 percent, compared with a gain of 0.1 percent in May.

Stocks have been surging for months largely on optimism that both the economy and corporate profits would show strong improvement in the second half of the year, despite only mixed evidence to support such hopes. Any news that may support Wall Street's recovery hopes has been seized upon by investors and Monday continued that trend. Unfortunately, last-hour selling into the day's rally has also been a trend of late.

The Dow Jones industrial average (up 57.56 to 9177.15, Charts) and the Standard & Poor's 500 (up 5.72 to 1003.86, Charts) index both gained around 0.6 percent, having been up three times as much until the last hour or two of trade. The Nasdaq composite (up 20.89 to 1754.82, Charts) added 1.2 percent, having been up more than 2 percent before the profit taking set in. Traders also said that there were rumors of a trading floor error on a large order, which may have added to the selling.

Still, it was a largely positive day for the bulls, with investors finding plenty to be optimistic about.

Before the bell, Citigroup (C: up $0.97 to $47.12, Research, Estimates) reported second-quarter earnings of 83 cents per share, up from 73 cents a year earlier and 3 cents better than analysts expected, due largely to the company's consumer business. Citigroup also said it has increased its quarterly dividend to 35 cents per share from 20 cents. The stock rose 2.1 percent.

In addition, Bank of America (BAC: up $0.58 to $83.46, Research, Estimates) reported earnings of $1.80 per share, up from $1.40 a year earlier and much better than the $1.57 analysts expected. Greater credit card sales and an increase in its mortgage business led to the gains. The company's shares rose 0.7 percent.

The strength in the two stocks transferred to others in the sector, with Dow financials J.P. Morgan Chase (JPM: up $1.54 to $37.30, Research, Estimates) adding 4.3 percent and American Express (AXP: up $1.44 to $45.40, Research, Estimates) gaining 3.3 percent. The AMEX Banking index (up 19.90 to 913.64, Charts) rose 2 percent.

Additionally, several firms announced major acquisitions.

Among the day's deals: Yahoo! (YHOO: up $0.01 to $32.20, Research, Estimates) said it will buy smaller rival Internet search firm Overture Services (OVER: up $2.54 to $24.05, Research, Estimates) in a $1.63 billion cash and stock deal to help it better compete with Google. Yahoo! shares closed little changed, but Overture soared almost 12 percent.

Additionally, building and materials maker Boise Cascade (BCC: down $1.56 to $21.87, Research, Estimates) said it would buy OfficeMax (OMX: up $1.42 to $8.60, Research, Estimates) for $1.15 billion in cash and stock so as to increase its office products business. Boise shares fell 6.7 percent. OfficeMax surged almost 20 percent and was one of the NYSE's most-active issues.

Market breadth was decidedly positive, with advancers beating decliners by three to two on the New York Stock Exchange and by five to three on the Nasdaq. On the NYSE, 1.42 billion shares traded, while on the Nasdaq, volume stood at 1.96 billion shares.

Treasury prices tumbled, pushing the 10-year note yield up to 3.72 percent. The dollar slid against the yen and euro.

NYMEX light sweet crude oil futures closed unchanged at $31.05 a barrel in New York. COMEX gold rose $2.70 to $347.80.