(Corrects 4th bullet line about volume to read Thursday and not Friday)
* S&P 500 up 10 percent for quarter, best in a year
* S&P surpasses 2007 milestone
* Dow ends at another nominal record high
* Volume on Thursday was below year's average
* Dow up 0.4 pct, S&P 500 up 0.4 pct, Nasdaq up 0.3 pct (Updates to close, changes byline)
By Rodrigo Campos
NEW YORK, March 28 (Reuters) - The S&P 500 set a record closing high on Thursday, finishing a fifth consecutive month of gains to extend a four-year rally.
The S&P had hovered near its record for more than two weeks, and market action next week will help determine if this is just another stepping stone for the rally, or if a long-expected pullback is in the offing.
The benchmark S&P 500 closed its strongest quarter in a year, up 10 percent. The Dow climbed 11.3 percent and the Nasdaq gained 8.2 percent for the first three months of the year.
The new closing high "is a very appropriate punctuation for a great quarter that saw a lot of last year's anxieties recede," said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland.
"However, this could be the start to a more realistic look at the problems that still haven't gone away. Some degree of caution is probably still merited, with the problems in Cyprus probably only the beginning to what we could see in coming months."
The rally hit a wall in the last two weeks as the latest chapter in the euro-zone crisis developed, with Cyprus nearing a default and a possible exit from the euro bloc.
After the closing bell on Thursday, the S&P 500 gained 6.34 points, or 0.41 percent, to end at a new record of 1,569.19.
The Dow industrials, which have been setting a series of record highs since March 5, ended Thursday's session at yet another nominal closing high - ending above 14,578. The Dow also hit a lifetime intraday high on Thursday at 14,585.10
The Dow Jones industrial average rose 52.38 points, 0.36 percent, to finish at 14,578.54, and the Nasdaq Composite added 11 points, or 0.34 percent, to 3,267.52.
The gains in the three first months of the year have a very bullish history. An analysis by Ryan Detrick, senior technical strategist at Schaeffer's Investment Research in Cincinnati, showed the S&P 500 has risen in the three first months of the year nine times in the past 30 years, and in each case, it has posted gains for the year.
The average yearly gain after such a start, the data showed, was 17.56 percent. An advance like that would leave the S&P 500 at about 1,676 at the end of this year.
"It will be very important how the market handles next week's data."
Key manufacturing numbers are expected on Monday and factory orders Tuesday, building up to Friday's widely followed payrolls report.
During March, the Dow gained 3.7 percent, the S&P 500 rose 3.6 percent and the Nasdaq added 3.4 percent.
Thursday marked the end of the trading week. U.S. stock markets will be closed on Friday because of the Good Friday holiday.
Data showed the number of Americans filing new claims for unemployment benefits rose more than expected last week, but probably not enough to suggest a faltering in the labor market's recovery. Other data showed the economy expanded more in the fourth quarter than was previously estimated by the government.
Volume was lighter than average with some market participants absent for the observance of Passover or to get an early start on the long Easter weekend.
About 5.7 billion shares changed hands on the New York Stock Exchange, the Nasdaq and NYSE MKT, below the daily average so far this year of about 6.4 billion shares.
On the NYSE, advancers outnumbered decliners by a ratio of roughly 8 to 5. On the Nasdaq, 14 stocks rose for every 11 that fell. (Reporting by Rodrigo Campos, Chuck Mikolajczak and Ryan Vlastelica; Editing by Jan Paschal)