NEW YORK ( TheStreet) -- Stocks rallied to fresh highs for the year Thursday, closing just off their session peaks, as investors felt optimism after the Federal Reserve decided to keep rates low. Morning economic data helped to douse inflation fears.

The Dow Jones Industrial Average improved 48 points, or 0.5% to 10,734. The S&P 500 gained 7 points, or 0.6%, to 1166 and the Nasdaq went ahead by 11 points, or 0.5%, at 2389.

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The Dow closed higher for the seventh straight session, after soaring to its highest point in more than a year, hitting an intraday peak of 10,765.04. The level marked the highest point since Oct. 3, 2008, when the Dow touched 10,844.69. The S&P 500 hit a session high of 1169.6 -- its best level since Sept. 29, 2008 -- and the Nasdaq rose to 2399, marking its best point since Aug. 25, 2008.

Basic materials, energy and financial were the day's best sector performers, with Alcoa ( AA), Bank of America ( BAC), JPMorgan Chase ( JPM) and Exxon Mobil ( XOM) leading the Dow.

After the bell, Nike ( NKE) shares bounded more than 3% higher in extended trading after it reported third-quarter earnings that outdistanced forecasts. The improving profit -- $1.01 a share -- was helped by surging China and sales in emerging markets. The sports apparel and shoemaker also said global future orders were up 9%.

Financial shares were in the spotlight today as Fed Chairman Ben Bernanke defended the central bank's ability to oversee smaller banks in his testimony on banking supervision before the House Committee on Financial Services. The KBW Bank index rose 1.7% today.

In other Washington news, the Senate passed a jobs bill that expands public building projects and exempts employers from payroll taxes when they hire workers who have been unemployed for at least 60 days.

In economic news, U.S. producer prices fell 0.6% in February -- marking the largest drop in seven months. The decline surpassed the 0.2% dip that economists had been expecting. Excluding volatile food and energy prices, core wholesale prices rose 0.1%, as expected.

Mortgage loan-application volume slipped 1.7% lower in the week ended March 12, according to the Mortgage Bankers Association's Market Composite Index. Purchase activity also fell, by 2.3%.

Earlier, global markets got a boost as investors seemed assured that tightening would be a gradual process after the Federal Open Market Committee said rates would stay low for an extended period .

"All in all, the statement reflected an even more gradualist Fed than we had expected," said UBS economist Maury Harris, commenting on the FOMC's announcement on Wednesday. "We had anticipated slightly more of an upgrade to the outlook or some qualification to the policy rate guidance."

Harris said the statement's tone still remains consistent with his expectations for the first fed funds rate hike to come in September.

Japan's central bank also kept its key interest rate at 0.1% and said it will double its short-term lending program to 20 trillion yen ($221.3 billion) from 10 trillion yen.

Overseas, Hong Kong's Hang Seng rose 1.7%, and Japan's Nikkei gained 1.1%. The FTSE in London gained 0.4%, and the DAX in Frankfurt rose 0.9%.

Lifting the energy sector, the Energy Information Administration said crude oil inventories gained 1 million barrels in the week ended March 12, besting forecasts for a build of 1.9 million barrels. Gasoline supplies lost 1.7 million barrels, and distillates shed 1.5 million barrels, while analysts polled by Platts had expected gasoline stocks to drop 1.5 million barrels and distillate stockpiles to lose 1.6 million barrels.

Earlier, the Organization of the Petroleum Exporting Countries opted to keep output at 4.2 million barrels a day as weekly inventory data came in better than expected.

Crude oil for April delivery traded $1.23 higher to settle at $82.93 a barrel.

Ford ( F) shares gained 4.5% on a credit-rating upgrade from Moody's Investors Service.

In other auto news, , General Motors may be looking to the second half of 2010 for its initial public offering.

PepsiCo said it will stop global sales of full-sugar soft drinks to primary and secondary schools by 2012. Its stock improved 50 cents, or 0.8%, at $66.57, while shares of rival Coca-Cola ( KO) advanced 14 cents, or 0.3%, to $53.84.

Shares of Blockbuster ( BBI) plunged almost 30% as the ailing movie- and game-rental company warned that it may be forced to file under U.S. bankruptcy code if cash flows don't improve and if it can't restructure debt.

Google ( GOOG) saw shares gain 36 cents, or 0.1%, to $565.56 after FBR raised 2010 estimates, citing the company's strength in the advertising market. The news came on the same day that a report showed Facebook to have surpassed the search giant as the most-visited U.S. Web site for the first time last week.

Shares of Hartford Financial Services ( HIG) traded up 4.8%, to $28.58 after the insurer said it plans to use stock and debt sales to raise funds to repay what it owes under the U.S. government's Troubled Asset Relief Program.

Staples ( SPLS) offered to buy the 41.1% of Corporate Express Australia that it doesn't already own. Its stock gained 9 cents, or 0.4%, to $23.72.

Citigroup ( C), General Electric ( GE) and Ford were the most heavily traded shares on the New York Stock Exchange, which had a listed volume of about 5 billion. The Dow, meanwhile, saw volume of nearly 194 million, compared with an average of 200.4 million.

The April gold contract added $1.70 to settle at $1,124.20 an ounce.

The dollar was trading higher against a basket of currencies, with the dollar index up by nearly 0.1%.

The benchmark 10-year Treasury strengthened 6/32, diluting the yield to 3.632%.

-- Written by Melinda Peer and Sung Moss in New York.

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