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* Powell: further rate hikes best way to protect economic recovery
* Higher commodity prices boost energy, materials sectors
* Netflix gains after SunTrust's bullish view on subscribers
* Gap and Foot Locker tumble on disappointing results
* Indexes up: Dow 0.51 pct, S&P 0.59 pct, Nasdaq 0.82 pct (Updates to late afternoon, changes byline, adds NEW YORK to dateline)
By April Joyner
NEW YORK, Aug 24 (Reuters) - The S&P 500 and the Nasdaq hit new record highs on Friday after Federal Reserve Chairman Jerome Powell affirmed U.S. economic strength and said the central bank's gradual interest rate hikes were the best way to protect the economic recovery.
The Fed's current approach to rate increases is designed to keep job growth as strong as possible and inflation under control, Powell said. His comments did little to change market expectations of a rate hike in September and perhaps again in December.
Investors said they were reassured that Powell's comments stayed in line with previous commentary from the Fed regarding its policy.
"He made it very clear that the Fed is not going to surprise the market with a more accelerated pace of rate hikes," said Quincy Krosby, chief market strategist at Prudential Financial in Newark, New Jersey.
The Dow Jones Industrial Average rose 129.95 points, or 0.51 percent, to 25,786.93, the S&P 500 gained 16.79 points, or 0.59 percent, to 2,873.77 and the Nasdaq Composite added 64.62 points, or 0.82 percent, to 7,943.07.
The S&P 500 will confirm its longest-ever bull market run if it ends the session above its Jan. 26 record close.
The small-cap Russell 2000 index touched a record high and was last up 0.4 percent.
A dip in the dollar after Powell's comments helped lift materials and energy stocks as the prices of oil and metals rose. The S&P 500 materials sector jumped 1.4 percent, the biggest percentage gain among the 11 major S&P sectors.
Economic data also boosted sentiment. New orders for key U.S.-made capital goods increased more than expected in July and shipments growth held firm, the Commerce Department said.
Netflix Inc shares rose 5.5 percent to add the most gains to the S&P 500 after SunTrust Robinson Humphrey upgraded its rating on the stock to "buy" and projected that third-quarter subscriber growth would match or beat Wall Street estimates.
Autodesk Inc shares leaped 13.8 percent, the greatest percentage gain among S&P 500 stocks, after the software maker's quarterly results beat estimates.
Shares of Gap Inc and Foot Locker Inc sank 8.8 percent and 9.7 percent, respectively, after the two retailers posted disappointing same-store sales.
Advancing issues outnumbered declining ones on the NYSE by a 2.14-to-1 ratio; on Nasdaq, a 1.69-to-1 ratio favored advancers.
The S&P 500 posted 36 new 52-week highs and four new lows; the Nasdaq Composite recorded 145 new highs and 27 new lows. (Reporting by April Joyner; additional reporting by Shreyashi Sanyal and Savio D'Souza in Bengaluru; editing by Anil D'Silva and Nick Zieminski)