(Updates to afternoon U.S. trading)

* Indexes: Dow up 0.10%, S&P 500 gained 0.27%, Nasdaq up

0.52%

* Airline and cruise stocks take a hit, defense stocks

rise

* Tech stocks offset broader market losses

* BlackRock ( BLK )-led consortium to acquire AES Corp ( AES ) for $33.4

billion

By Sabrina Valle and Pranav Kashyap

March 2 (Reuters) - U.S. stocks rebounded on Monday

afternoon after losses in the morning, when global markets

reeled following U.S.-Israeli air strikes in Iran, leaving most

major exchanges abroad in the red.

Bargain-hunting U.S. investors bought on dips after the

early selloff, showing an expectation that the disruptions from

the conflict will be limited.

"Market participants think this is all just temporary and

that the problems in the oil patch will disappear," said Bill

Smead, founder and chairman of Smead Capital Management.

The main indexes were modestly higher as the clash

initially boosted defense shares and energy prices and pressured

travel and interest-sensitive sectors. Later, investors ran to

tech and weighed how long the Middle East conflict could run

and what the conflict means for inflation and Federal Reserve

policy.

Smead said investors were reverting to familiar,

high-performing stocks like Nvidia ( NVDA ), the Magnificent Seven

technology stocks and defense sectors.

"When people get scared, they go back to what is

comfortable," he said.

At 2:30 p.m. the Dow Jones Industrial Average rose

50.36 points, or 0.10%, to 49,028.28, the S&P 500 gained

18.54 points, or 0.27%, to 6,897.13 and the Nasdaq Composite

gained 118.73 points, or 0.52%, to 22,786.94.

That resilience contrasted sharply with Europe and Asia,

where markets sank under the weight of surging oil prices and

war-driven uncertainty.

The French and German stock markets fell more than 1%.

Across Asia, Japan's Nikkei 225 slid 1.73%, having plunged as

much as 2% at the open.

Energy companies, whose profits rise alongside oil prices,

outperformed, while travel and airline stocks sank due to flight

cancelations, higher jet-fuel costs and widespread Middle East

airspace closures.

A number of carriers canceled flights, while several oil

and gas facilities in the Middle East stopped production. U.S.

crude prices were up 6% after being up twice as much during the

session.

Delta fell more than 2% and United Airlines

tumbled over 4%, while crude-price-sensitive cruise stocks such

as Carnival lost 6% and Norwegian Cruise fell

over 10%.

Offsetting those losses, Nvidia ( NVDA ) gained 2.8% and

Microsoft ( MSFT ) climbed 1.5%, recovering from sharp declines

last month. The gains helped the S&P 500 and the Nasdaq cut

losses after briefly hitting two-week lows earlier in the

session.

Defense stocks also got a boost, with Lockheed Martin ( LMT ) up

2.5% and Palantir ( PLTR ) up 5.9%, with geopolitics in the

spotlight after coordinated U.S. and Israeli strikes on Iran

over the weekend killed Tehran's Supreme Leader.

President Donald Trump also told CNN the "big wave" is yet to

come, although some Middle Eastern countries were lobbying U.S.

allies to persuade a swift end to the war.

Wall Street's fear gauge, the CBOE VIX, eased from a

three-month high hit earlier in the day and was last up 1.55

points at 21.41.

Wells Fargo's Ohsung Kwon warned the S&P 500 could fall to

6,000 points, nearly 13% below its last close, if crude

surpasses $100 per barrel, with earnings potentially taking a

1.3% hit.

On the earnings front, Norwegian Cruise forecast annual profit

below Wall Street expectations.

AES Corp ( AES ) fell 17.3% after a consortium led by

BlackRock ( BLK )-owned Global Infrastructure Partners and

equity firm EQT AB agreed to acquire the utilities

company for $33.4 billion at a discount to its last close.

Crypto stocks Coinbase and Strategy rose more

than 5% each as bitcoin rallied.