(Reuters) - Stocks rose sharply on Thursday as risk appetite escalated following more monetary stimulus from the U.S. Federal Reserve in a move to boost a wilting economic recovery.

The Fed's plan to buy $600 billion in Treasuries lifted risky assets, including commodity-related stocks that rose on expectations of worldwide demand. An index of commodity prices .CRB hit its highest level in more than two years.

Oil and basic materials equities rallied on the greenback's weakness. The U.S. dollar .DXY was down 0.8 percent against a basket of major currencies.

Freeport McMoRan Copper and Gold Inc (FCX.N) jumped 5 percent to $102, a price not seen since July 2008. The S&P materials index .GSPM was up 2.7 percent.

The Fed's move is aimed at "trying to get everybody into those risk assets," said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont. "The game (plan) short term here appears to be very easy: You just buy those risky assets."

The spike in commodities, coupled with the cash injection from the U.S. central bank, made some investors worry about the possibility of rising inflation.

Gold, traditionally seen as an inflation hedge, shot above $1,380 an ounce to near its record high.

"Look at gold today," said Mendelsohn. "That indicates people are holding their nose, jumping into the stock market, but protecting their assets."

"The part of the market that will drive this rally is the commodities. That's the part that's been fueling it, that's the part that will continue to fuel it," said Mendelsohn.

The Dow Jones industrial average .DJI added 176.65 points, or 1.58 percent, to 11,391.78. The Standard & Poor's 500 .SPX rose 17.01 points, or 1.42 percent, to 1,214.97. The Nasdaq Composite .IXIC gained 31.12 points, or 1.23 percent, to 2,571.39.

The benchmark S&P rose to within three points of a high going back more than two years.

In what could be seen as conflicting technical signals, the S&P 500 daily moving average convergence-divergence chart triggered a buy signal for the first time since October 18, but its relative strength index jumped near 76. An RSI reading above 70 indicates an overbought level.

The CBOE Volatility Index .VIX, Wall Street's so-called fear gauge, fell 5.7 percent. The VIX usually moves inversely with the S&P 500, tracking options prices that investors are willing to pay as a protection on the underlying stocks. For a graphic see r.reuters.com/fuh83q.

The VIX's decline suggested investors were confident the Fed's efforts will underpin market gains.

U.S. retailers from discounter Target Corp (TGT.N) to teen apparel chain Zumiez Inc (ZUMZ.O) reported October same-store sales above expectations. Target rose 3 percent to $55.61, and Zumiez soared 13 percent to $28.65.

Industrywide sales in October were in line with expectations, and the S&P retail index .RLX gained 1.6 percent.

In the latest economic data, new U.S. applications for unemployment insurance rose more than expected last week while separate data showed unit labor costs fell in the third quarter and nonfarm productivity rebounded at a much stronger-than-expected 1.9 percent annual rate in the third quarter.

U.S.-listed shares of BHP Billiton Plc (BLT.L)(BBL.N) were up 6.7 percent at $78.93 after the Canadian government blocked BHP's bid for Potash Corp of Saskatchewan Inc (POT.TO)(POT.N). New York-traded shares of Potash fell 2.8 percent to $141.44.

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