Aug 27 (Reuters) - The S&P 500 and the Nasdaq hit record highs in a risk-on-rally on Friday as Federal Reserve Chair Jerome Powell signaled the U.S. central bank would remain patient in winding down stimulus. In prepared remarks for a speech to the Jackson Hole economic conference, Powell defended the view of "transitory" inflation and stopped short of signaling the timing for any reduction in the $120 billion asset purchases program beyond "this year." read more "He successfully threaded the needle in communicating that tapering will likely begin this year, while reinforcing the notion that tapering does not mean tightening," said Cliff Hodge, chief investment officer for Cornerstone Wealth. "We believe that barring further setbacks from the Delta variant, that September will likely produce a blowout jobs number and set the table for the official tapering announcement at the September FOMC meeting." Data earlier on Friday showed the Fed"s favored inflation gauge, the personal consumption expenditure index, moderated in July. The index rose 3.6% in the 12 months through July, more than the central bank"s flexible 2% target. read more "With the growth in money supply, you have to anticipate that there are some long-term inflation problems. So any sectors that have the ability to raise prices, those are the sectors you want to stay in so that if we do get inflation in the long term, you have a natural hedge against that," said Greg Swenson, founding partner of Brigg Macadam. "It"s pretty easy to say at this point in the United States to stay long cyclicals." All the 11 major S&P sectors advanced, with energy (.SPNY) shares jumping 3.1% to lead the gains, followed by materials (.SPLRCM) and communication services (.SPLRCL). The small-cap Russell 2000 index (.RUT) rose 2.7% to its highest level since July 13. The Cboe Volatility Index (.VIX), Wall Street"s fear gauge, fell 2.32 points to 16.52. U.S. stocks had fallen from all-time highs on Thursday on concerns over developments in Afghanistan. Still, the three major indexes were set for weekly gains, with the tech-heavy Nasdaq on pace to outperform the S&P 500 and the blue-chip Dow. At 12:23 p.m. ET, the Dow Jones Industrial Average (.DJI) was up 213.04 points, or 0.61%, at 35,426.16, the S&P 500 (.SPX) was up 35.11 points, or 0.79%, at 4,505.11, and the Nasdaq Composite (.IXIC) was up 161.06 points, or 1.08%, at 15,106.87. Among earnings-driven moves, apparel retailer Gap Inc (GPS.N) added 3.2% after raising its full-year net sales forecast as socializing makes a comeback with easing pandemic curbs. read more Workday Inc (WDAY.O) jumped 10.1% as brokerages raised their price targets for the stock after the enterprise-cloud applications company beat analysts" estimates for second-quarter revenue. Peloton Interactive Inc (PTON.O) tumbled 7.8% after it issued a profit warning and said it was being probed by U.S. regulators over an accident involving its treadmills earlier this year. read more Advancing issues outnumbered decliners by a 5.43-to-1 ratio on the NYSE and by a 3.88-to-1 ratio on the Nasdaq. The S&P index recorded 56 new 52-week highs and 1 new low, while the Nasdaq recorded 97 new highs and 28 new lows.