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Dow surges to record on optimism about economy

NEW YORK (Reuters) - The Dow Jones Industrial Average surged to a record on Tuesday, breaking through levels last seen in 2007 as investors poured money into blue-chip stocks in expectation of more gains amid signs of a strengthening U.S. economy.

The oldest U.S. stock market gauge has gained more than 8 percent so far this year, ahead of the S&P 500 and Nasdaq Composite Index. Nine of its component stocks reached new 52-week highs on a day when nearly 400 stocks hit new yearly highs on the New York Stock Exchange.

The Dow is currently also on track to surpass the record closing high set on October 9, 2007, when it closed at 14,164.53.

"It has been a long, grinding recovery, but the private economy is holding its own in the face of very challenging policy and political risks," said Stephen Wood, chief market strategist at Russell Investments in New York, which has about $180 billion in assets under management.

The Dow Jones Industrial Average was up 152.48 points, or 1.08 percent, at 14,280.30. The Standard & Poor's 500 Index was up 16.58 points, or 1.09 percent, at 1,541.78. The Nasdaq Composite Index was up 39.23 points, or 1.23 percent, at 3,221.27.

The latest sign of an improving economy was data showing the pace of growth in the vast U.S. services sector accelerated to its fastest pace in a year in February.

Among shares hitting all-time highs were Walt Disney Co (DIS.N) and Post-It note maker 3M (MMM.N). All 10 of the S&P 500's industry sectors rose.

"There is a lot of momentum and rotation going into equities from cash and bonds, and right now sentiment seems to have the upper hand over fundamentals," said Wood.

The broad benchmark S&P 500 is at a five-year high but still away from its all-time intraday high of 1,576.09.

Analysts said Tuesday's advance was due less to one specific catalyst and more to the same factors that have been driving the rally this year, namely, attractive valuations and liquidity due to easy monetary policies adopted by major central banks around the world.

"Stocks are close to fair value, but very cheap relative to the bond market and to cash, which is very expensive," Said David Kelly, Managing Director and Chief Market Strategist at JP Morgan Asset Management in New York.

"Plenty of risks remain, but they are smaller - and they feel smaller to investors."

Shortly after the opening bell, the Dow rose above 14,198.10, the intraday all-time high reached in October 2007, when the world was heading toward the financial crisis.

Tech stocks jumped, pushing the Nasdaq up more than 1 percent. Qualcomm Inc (QCOM.O) was one of the biggest gainers, with shares up 2.3 percent at $68.15 after the world's leading supplier of chips for cellphones said it was raising its quarterly cash dividend by 40 percent.

United Technologies Corp (UTX.N) was the biggest gainer on the Dow index, up 2.3 percent at $91.18, followed by Bank of America (BAC.N), up 1.8 percent at $11.61.

(Reporting By Angela Moon; Editing by Nick Zieminski and Kenneth Barry)