* Indexes up: Dow 0.81%, S&P 500 0.75%, Nasdaq 0.97%

* Arm shares jump as new AI chip to drive billions in

revenue

* Space stocks rise on report SpaceX could file for IPO

this week

* Airlines, cruise stocks higher as oil prices dip

(Updates prices to late afternoon)

By Sinéad Carew and Purvi Agarwal

March 25 (Reuters) - Wall Street's main indexes rose on

Wednesday as oil prices dropped, with talks between the U.S. and

Iran feeding investor hopes for a de-escalation in the fourth

week of a war that has exacerbated inflation concerns.

Iran initially said it considered U.S. proposals delivered

by Pakistan as excessive and demanded sovereignty over the

Strait of Hormuz. On Wednesday, a senior Iranian official told

Reuters that Tehran was still reviewing the proposal to end the

war.

Global markets had drawn comfort from reports the U.S. was

seeking a ceasefire, and hoped for restoration of shipping

through the crucial strait.

"There is optimism that the proposal and counter-proposal

are setting the stage for more negotiations," said Gene Goldman,

chief investment officer at Cetera Investment Management.

Until there is clarity on when the war might end, Goldman

said he expects "volatility to remain elevated given the impact

of higher oil prices on inflation."

At 2:03 p.m., the Dow Jones Industrial Average

rose 375.60 points, or 0.81%, to 46,499.66, the S&P 500

gained 49.12 points, or 0.75%, to 6,605.49 and the Nasdaq

Composite gained 210.18 points, or 0.97%, to 21,972.08.

Energy fell slightly in sympathy with oil prices.

The rest of the S&P 500's 11 major industry sectors were gaining

ground. The biggest gainers were materials, up nearly

2%, and consumer discretionary, up more than 1.6%.

With oil prices down more than 2%, shares in companies that

depend heavily on fuel were rallying. Cruise operators including

Norwegian Cruise Line ( NCLH ) gained more than 3%. Airline

stocks also rose, with the S&P Composite 1500 Passenger Airlines

index up 1.7%.

The small-cap Russell 2000 index was up 1.2% after

hitting a two-week high.

U.S.-listed shares of Arm jumped 18.6% after the

company unveiled a new AI data center chip that is expected to

bring billions of dollars in revenue. It was the biggest gainer

in the Philadelphia Semiconductor Index, which added

1.6%. Other chipmakers also moved higher with Intel ( INTC ) up

more than 7% while Nvidia ( NVDA ) rose 2%.

Destiny Tech100 ( DXYZ ) surged 14% after a report that

SpaceX aims to file its IPO prospectus as soon as this week.

SpaceX is the fund's largest equity holding.

Other space companies also rose, with Rocket Lab ( RKLB ) up

8% and Intuitive Machines ( LUNR ) adding almost 14%. EchoStar ( SATS )

shares added 8.8%.

The oil price spike has revived inflation worries,

complicating the interest-rate outlook of central banks. Markets

are no longer pricing in any easing from the Federal Reserve

this year, according to CME Group's FedWatch Tool, compared with

the two cuts that were expected before the war broke out.

Among other movers, U.S.-listed shares of JD.com ( JD ) rose

8% and Alibaba ( BABA ) rose 3.7%, after Chinese state media and

the regulator urged the food-delivery platform industry to end a

price war. Robinhood Markets ( HOOD ) added 5.3% after the

trading platform announced a new $1.5 billion share buyback

program.

Advancing issues outnumbered decliners by a 3.19-to-1 ratio

on the NYSE, where there were 92 new highs and 106 new lows. On

the Nasdaq, 3,171 stocks rose and 1,465 fell as advancing issues

outnumbered decliners by a 2.16-to-1 ratio.

The S&P 500 posted 15 new 52-week highs and 23 new lows

while the Nasdaq Composite recorded 58 new highs and 148 new

lows.